

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934 for the quarterly period ended	~~June~~September 30, 2023

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _________________

Commission file number 1-13163

________________________

YUM! BRANDS, INC.

(Exact name of registrant as specified in its charter)

North Carolina

13-3951308

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1441 Gardiner Lane,

Louisville,

Kentucky

40213

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(502)

874-8300


Securities registered pursuant to Section 12(b) of the Act

	Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
	Common Stock, no par value	YUM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the registrant’s Common Stock as of ~~August~~November 2, 2023, was ~~280,211,281~~280,308,219 shares.

YUM! BRANDS, INC.

INDEX


		Page
		No.
Part I.	Financial Information

	Item 1 - Financial Statements

	Condensed Consolidated Statements of Income	4

	Condensed Consolidated Statements of Comprehensive Income	5

	Condensed Consolidated Statements of Cash Flows	6

	Condensed Consolidated Balance Sheets	7

	Condensed Consolidated Statements of Shareholders' Deficit	8

	Notes to Condensed Consolidated Financial Statements	9

	Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	2223

	Item 3 - Quantitative and Qualitative Disclosures About Market Risk	3940

	Item 4 - Controls and Procedures	3940

	Report of Independent Registered Public Accounting Firm	4041

Part II.	Other Information and Signatures

	Item 1 - Legal Proceedings	4142

	Item 1A - Risk Factors	4142

	Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	4142



	Item 6 - Exhibits	4243

	Signatures	4344

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)	CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)									CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES	YUM! BRANDS, INC. AND SUBSIDIARIES									YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)	(in millions, except per share data)									(in millions, except per share data)
		Quarter ended				Year to date					Quarter ended				Year to date
Revenues	Revenues	6/30/2023		6/30/2022		6/30/2023		6/30/2022		Revenues	9/30/2023		9/30/2022		9/30/2023		9/30/2022
Company sales	Company sales	$	511	$	499	$	985	$	969	Company sales	$	510	$	479	$	1,495	$	1,448
Franchise and property revenues	Franchise and property revenues	785		737		1,555		1,451		Franchise and property revenues	796		760		2,351		2,211
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	391		400		792		763		Franchise contributions for advertising and other services	402		401		1,194		1,164
Total revenues	Total revenues	1,687		1,636		3,332		3,183		Total revenues	1,708		1,640		5,040		4,823
Costs and Expenses, Net	Costs and Expenses, Net									Costs and Expenses, Net
Company restaurant expenses	Company restaurant expenses	415		415		818		817		Company restaurant expenses	421		402		1,239		1,219
General and administrative expenses	General and administrative expenses	291		254		573		507		General and administrative expenses	267		261		840		768
Franchise and property expenses	Franchise and property expenses	32		29		68		61		Franchise and property expenses	27		28		95		89
Franchise advertising and other services expense	Franchise advertising and other services expense	388		396		783		757		Franchise advertising and other services expense	400		396		1,183		1,153
Refranchising (gain) loss	Refranchising (gain) loss	(17)		(8)		(21)		(12)		Refranchising (gain) loss	(19)		(3)		(40)		(15)
Other (income) expense	Other (income) expense	5		(4)		15		(10)		Other (income) expense	(1)		10		14		—
Total costs and expenses, net	Total costs and expenses, net	1,114		1,082		2,236		2,120		Total costs and expenses, net	1,095		1,094		3,331		3,214
Operating Profit	Operating Profit	573		554		1,096		1,063		Operating Profit	613		546		1,709		1,609
Investment (income) expense, net	Investment (income) expense, net	(29)		15		(5)		8		Investment (income) expense, net	(16)		(27)		(21)		(19)
Other pension (income) expense	Other pension (income) expense	(1)		1		(3)		1		Other pension (income) expense	(2)		2		(5)		3
Interest expense, net	Interest expense, net	125		148		255		266		Interest expense, net	126		124		381		390
Income Before Income Taxes	Income Before Income Taxes	478		390		849		788		Income Before Income Taxes	505		447		1,354		1,235
Income tax provision	Income tax provision	60		166		131		165		Income tax provision	89		116		220		281
Net Income	Net Income	$	418	$	224	$	718	$	623	Net Income	$	416	$	331	$	1,134	$	954

Basic Earnings Per Common Share	Basic Earnings Per Common Share	$	1.49	$	0.78	$	2.55	$	2.16	Basic Earnings Per Common Share	$	1.48	$	1.16	$	4.03	$	3.33

Diluted Earnings Per Common Share	Diluted Earnings Per Common Share	$	1.46	$	0.77	$	2.51	$	2.13	Diluted Earnings Per Common Share	$	1.46	$	1.14	$	3.97	$	3.28

Dividends Declared Per Common Share	Dividends Declared Per Common Share	$	0.605	$	0.57	$	1.21	$	1.14	Dividends Declared Per Common Share	$	0.605	$	0.57	$	1.815	$	1.71

See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.									See accompanying Notes to Condensed Consolidated Financial Statements.


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)									CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES	YUM! BRANDS, INC. AND SUBSIDIARIES									YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)	(in millions)									(in millions)
		Quarter ended				Year to date					Quarter ended				Year to date
		6/30/2023		6/30/2022		6/30/2023		6/30/2022			9/30/2023		9/30/2022		9/30/2023		9/30/2022

Net Income	Net Income	$	418	$	224	$	718	$	623	Net Income	$	416	$	331	$	1,134	$	954
Other comprehensive income, net of tax	Other comprehensive income, net of tax									Other comprehensive income, net of tax
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature	Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature									Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
Adjustments and gains (losses) arising during the period	Adjustments and gains (losses) arising during the period	4		(21)		12		(44)		Adjustments and gains (losses) arising during the period	(20)		(55)		(8)		(99)
Reclassification of adjustments and (gains) losses into Net Income	Reclassification of adjustments and (gains) losses into Net Income	60		—		60		—		Reclassification of adjustments and (gains) losses into Net Income	—		—		60		—
		64		(21)		72		(44)			(20)		(55)		52		(99)
Tax (expense) benefit	Tax (expense) benefit	—		—		—		—		Tax (expense) benefit	—		—		—		—
		64		(21)		72		(44)			(20)		(55)		52		(99)
Changes in pension and post-retirement benefits	Changes in pension and post-retirement benefits									Changes in pension and post-retirement benefits
Unrealized gains (losses) arising during the period	Unrealized gains (losses) arising during the period	—		—		—		—		Unrealized gains (losses) arising during the period	—		20		—		20
Reclassification of (gains) losses into Net Income	Reclassification of (gains) losses into Net Income	1		4		1		9		Reclassification of (gains) losses into Net Income	—		5		1		14
		1		4		1		9			—		25		1		34
Tax (expense) benefit	Tax (expense) benefit	—		(1)		(2)		(2)		Tax (expense) benefit	—		(6)		(2)		(8)
		1		3		(1)		7			—		19		(1)		26
Changes in derivative instruments	Changes in derivative instruments									Changes in derivative instruments
Unrealized gains (losses) arising during the period	Unrealized gains (losses) arising during the period	26		15		18		72		Unrealized gains (losses) arising during the period	7		42		25		114
Reclassification of (gains) losses into Net Income	Reclassification of (gains) losses into Net Income	(8)		6		(11)		18		Reclassification of (gains) losses into Net Income	(9)		1		(20)		19
		18		21		7		90			(2)		43		5		133
Tax (expense) benefit	Tax (expense) benefit	(5)		(5)		(2)		(22)		Tax (expense) benefit	1		(11)		(1)		(33)
		13		16		5		68			(1)		32		4		100

Other comprehensive income, net of tax		78		(2)		76		31
Other comprehensive income (loss), net of tax										Other comprehensive income (loss), net of tax	(21)		(4)		55		27
Comprehensive Income	Comprehensive Income	$	496	$	222	$	794	$	654	Comprehensive Income	$	395	$	327	$	1,189	$	981

See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.									See accompanying Notes to Condensed Consolidated Financial Statements.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)					CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES	YUM! BRANDS, INC. AND SUBSIDIARIES					YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)	(in millions)					(in millions)
		Year to date					Year to date
		6/30/2023		6/30/2022			9/30/2023		9/30/2022
Cash Flows – Operating Activities	Cash Flows – Operating Activities					Cash Flows – Operating Activities
Net Income	Net Income	$	718	$	623	Net Income	$	1,134	$	954
Depreciation and amortization	Depreciation and amortization	67		71		Depreciation and amortization	104		104

Refranchising (gain) loss	Refranchising (gain) loss	(21)		(12)		Refranchising (gain) loss	(40)		(15)
Investment (income) expense, net	Investment (income) expense, net	(5)		8		Investment (income) expense, net	(21)		(19)

Deferred income taxes	Deferred income taxes	(73)		—		Deferred income taxes	(93)		3
Share-based compensation expense	Share-based compensation expense	47		45		Share-based compensation expense	69		64
Changes in accounts and notes receivable	Changes in accounts and notes receivable	(21)		(4)		Changes in accounts and notes receivable	(13)		(26)
Changes in prepaid expenses and other current assets	Changes in prepaid expenses and other current assets	(19)		(2)		Changes in prepaid expenses and other current assets	(16)		(3)
Changes in accounts payable and other current liabilities	Changes in accounts payable and other current liabilities	(107)		(213)		Changes in accounts payable and other current liabilities	(52)		(149)
Changes in income taxes payable	Changes in income taxes payable	19		(23)		Changes in income taxes payable	(4)		(3)
Other, net	Other, net	73		29		Other, net	87		65
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	678		522		Net Cash Provided by Operating Activities	1,155		975

Cash Flows – Investing Activities	Cash Flows – Investing Activities					Cash Flows – Investing Activities
Capital spending	Capital spending	(122)		(97)		Capital spending	(179)		(158)
Proceeds from sale of KFC Russia	Proceeds from sale of KFC Russia	121		—		Proceeds from sale of KFC Russia	121		—
Proceeds from refranchising of restaurants	Proceeds from refranchising of restaurants	31		41		Proceeds from refranchising of restaurants	57		51
Other, net	Other, net	(4)		(8)		Other, net	(3)		(5)
Net Cash Provided by (Used In) Investing Activities		26		(64)
Net Cash Used in Investing Activities						Net Cash Used in Investing Activities	(4)		(112)

Cash Flows – Financing Activities	Cash Flows – Financing Activities					Cash Flows – Financing Activities
Proceeds from long-term debt	Proceeds from long-term debt	—		999		Proceeds from long-term debt	—		999
Repayments of long-term debt	Repayments of long-term debt	(40)		(658)		Repayments of long-term debt	(60)		(678)
Revolving credit facility, three months or less, net	Revolving credit facility, three months or less, net	(249)		—		Revolving credit facility, three months or less, net	(279)		—

Repurchase shares of Common Stock	Repurchase shares of Common Stock	(50)		(557)		Repurchase shares of Common Stock	(50)		(714)
Dividends paid on Common Stock	Dividends paid on Common Stock	(339)		(327)		Dividends paid on Common Stock	(508)		(489)
Debt issuance costs	Debt issuance costs	—		(11)		Debt issuance costs	—		(11)
Other, net	Other, net	(20)		(32)		Other, net	(24)		(35)
Net Cash Used in Financing Activities	Net Cash Used in Financing Activities	(698)		(586)		Net Cash Used in Financing Activities	(921)		(928)
Effect of Exchange Rates on Cash and Cash Equivalents	Effect of Exchange Rates on Cash and Cash Equivalents	6		(15)		Effect of Exchange Rates on Cash and Cash Equivalents	(2)		(43)
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	12		(143)		Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	228		(108)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period	647		771		Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period	647		771
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period	$	659	$	628	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period	$	875	$	663



See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.					See accompanying Notes to Condensed Consolidated Financial Statements.


CONDENSED CONSOLIDATED BALANCE SHEETS	CONDENSED CONSOLIDATED BALANCE SHEETS					CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES	YUM! BRANDS, INC. AND SUBSIDIARIES					YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)	(in millions)					(in millions)
		(Unaudited) 6/30/2023		12/31/2022			(Unaudited) 9/30/2023		12/31/2022
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	437	$	367	Cash and cash equivalents	$	656	$	367
Accounts and notes receivable, net	Accounts and notes receivable, net	656		648		Accounts and notes receivable, net	647		648
Prepaid expenses and other current assets	Prepaid expenses and other current assets	422		594		Prepaid expenses and other current assets	402		594
Total Current Assets	Total Current Assets	1,515		1,609		Total Current Assets	1,705		1,609

Property, plant and equipment, net	Property, plant and equipment, net	1,162		1,171		Property, plant and equipment, net	1,157		1,171
Goodwill	Goodwill	641		638		Goodwill	638		638
Intangible assets, net	Intangible assets, net	369		354		Intangible assets, net	369		354
Other assets	Other assets	1,340		1,324		Other assets	1,360		1,324
Deferred income taxes	Deferred income taxes	821		750		Deferred income taxes	842		750
Total Assets	Total Assets	$	5,848	$	5,846	Total Assets	$	6,071	$	5,846

LIABILITIES AND SHAREHOLDERS’ DEFICIT	LIABILITIES AND SHAREHOLDERS’ DEFICIT					LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable and other current liabilities	Accounts payable and other current liabilities	$	1,063	$	1,251	Accounts payable and other current liabilities	$	1,119	$	1,251
Income taxes payable	Income taxes payable	50		16		Income taxes payable	12		16
Short-term borrowings	Short-term borrowings	374		398		Short-term borrowings	373		398
Total Current Liabilities	Total Current Liabilities	1,487		1,665		Total Current Liabilities	1,504		1,665

Long-term debt	Long-term debt	11,194		11,453		Long-term debt	11,152		11,453
Other liabilities and deferred credits	Other liabilities and deferred credits	1,603		1,604		Other liabilities and deferred credits	1,605		1,604
Total Liabilities	Total Liabilities	14,284		14,722		Total Liabilities	14,261		14,722

Shareholders’ Deficit	Shareholders’ Deficit					Shareholders’ Deficit
Common Stock, no par value, 750 shares authorized; 280 shares issued in 2023 and 2022	Common Stock, no par value, 750 shares authorized; 280 shares issued in 2023 and 2022	13		—		Common Stock, no par value, 750 shares authorized; 280 shares issued in 2023 and 2022	33		—
Accumulated deficit	Accumulated deficit	(8,156)		(8,507)		Accumulated deficit	(7,909)		(8,507)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(293)		(369)		Accumulated other comprehensive loss	(314)		(369)
Total Shareholders’ Deficit	Total Shareholders’ Deficit	(8,436)		(8,876)		Total Shareholders’ Deficit	(8,190)		(8,876)
Total Liabilities and Shareholders’ Deficit	Total Liabilities and Shareholders’ Deficit	$	5,848	$	5,846	Total Liabilities and Shareholders’ Deficit	$	6,071	$	5,846

See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.					See accompanying Notes to Condensed Consolidated Financial Statements.


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)	CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)														CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES	YUM! BRANDS, INC. AND SUBSIDIARIES														YUM! BRANDS, INC. AND SUBSIDIARIES
Quarters and years to date ended June 30, 2023 and 2022
Quarters and years to date ended September 30, 2023 and 2022															Quarters and years to date ended September 30, 2023 and 2022
(in millions)	(in millions)														(in millions)
		Yum! Brands, Inc.																Yum! Brands, Inc.
		Issued Common Stock			Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Shareholders' Deficit					Issued Common Stock				Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Shareholders' Deficit
		Shares	Amount												Shares				Amount
Balance at March 31, 2023		280	$	—			$	(8,403)			$	(371)				$	(8,774)
Balance at June 30, 2023															Balance at June 30, 2023			280		$	13		$	(8,156)		$	(293)		$	(8,436)
Net Income	Net Income				418								418		Net Income							416						416
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature	Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature								4				4		Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature										(20)			(20)
Reclassification of translation adjustments into income	Reclassification of translation adjustments into income								60				60		Reclassification of translation adjustments into income										—			—
Pension and post-retirement benefit plans	Pension and post-retirement benefit plans								1				1		Pension and post-retirement benefit plans										—			—
Net gain on derivative instruments (net of tax impact of $5 million)									13				13
Net loss on derivative instruments (net of tax impact of $1 million)															Net loss on derivative instruments (net of tax impact of $1 million)										(1)			(1)
Comprehensive Income	Comprehensive Income												496		Comprehensive Income													395
Dividends declared	Dividends declared				(171)								(171)		Dividends declared							(169)						(169)
Repurchase of shares of Common Stock	Repurchase of shares of Common Stock												—		Repurchase of shares of Common Stock													—
Employee share-based award exercises	Employee share-based award exercises	—	(10)										(10)		Employee share-based award exercises			—		(4)								(4)
Share-based compensation events	Share-based compensation events		23										23		Share-based compensation events					24								24
Balance at June 30, 2023		280	$	13	$	(8,156)			$	(293)			$	(8,436)
Balance at September 30, 2023															Balance at September 30, 2023			280		$	33	$	(7,909)		$	(314)		$	(8,190)

Balance at December 31, 2022	Balance at December 31, 2022	280	$	—	$	(8,507)			$	(369)			$	(8,876)	Balance at December 31, 2022			280		$	—	$	(8,507)		$	(369)		$	(8,876)
Net Income	Net Income				718								718		Net Income							1,134						1,134
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature	Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature								12				12		Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature										(8)			(8)
Reclassification of translation adjustments into income	Reclassification of translation adjustments into income								60				60		Reclassification of translation adjustments into income										60			60
Pension and post-retirement benefit plans (net of tax impact of $2 million)	Pension and post-retirement benefit plans (net of tax impact of $2 million)								(1)				(1)		Pension and post-retirement benefit plans (net of tax impact of $2 million)										(1)			(1)
Net gain on derivative instruments (net of tax impact of $2 million)									5				5
Net gain on derivative instruments (net of tax impact of $1 million)															Net gain on derivative instruments (net of tax impact of $1 million)										4			4
Comprehensive Income	Comprehensive Income												794		Comprehensive Income													1,189
Dividends declared	Dividends declared				(341)								(341)		Dividends declared							(510)						(510)
Repurchase of shares of Common Stock	Repurchase of shares of Common Stock	—	(24)		(26)								(50)		Repurchase of shares of Common Stock			—		(24)		(26)						(50)
Employee share-based award exercises	Employee share-based award exercises	—	(20)										(20)		Employee share-based award exercises			—		(24)								(24)
Share-based compensation events	Share-based compensation events		57										57		Share-based compensation events					81								81

Balance at June 30, 2023		280	$	13	$	(8,156)			$	(293)			$	(8,436)
Balance at September 30, 2023															Balance at September 30, 2023			280		$	33	$	(7,909)		$	(314)		$	(8,190)

Balance at March 31, 2022		286	$	—	$	(8,199)			$	(292)			$	(8,491)
Balance at June 30, 2022															Balance at June 30, 2022			285		$	—	$	(8,274)		$	(294)		$	(8,568)
Net Income	Net Income				224								224		Net Income							331						331
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature	Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature								(21)				(21)		Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature										(55)			(55)
Pension and post-retirement benefit plans (net of tax impact of $1 million)									3				3
Net gain on derivative instruments (net of tax impact of $5 million)									16				16
Pension and post-retirement benefit plans (net of tax impact of $6 million)															Pension and post-retirement benefit plans (net of tax impact of $6 million)										19			19
Net gain on derivative instruments (net of tax impact of $11 million)															Net gain on derivative instruments (net of tax impact of $11 million)										32			32
Comprehensive Income	Comprehensive Income												222		Comprehensive Income													327
Dividends declared	Dividends declared				(164)								(164)		Dividends declared							(162)						(162)
Repurchase of shares of Common Stock	Repurchase of shares of Common Stock	(2)	(15)		(135)								(150)		Repurchase of shares of Common Stock			(1)		(18)		(139)						(157)
Employee share-based award exercises	Employee share-based award exercises	1	(5)										(5)		Employee share-based award exercises			—		(3)								(3)
Share-based compensation events	Share-based compensation events		20										20		Share-based compensation events					21								21

Balance at June 30, 2022		285	$	—	$	(8,274)			$	(294)			$	(8,568)
Balance at September 30, 2022															Balance at September 30, 2022			284		$	—	$	(8,244)		$	(298)		$	(8,542)

Balance at December 31, 2021	Balance at December 31, 2021	289	$	—	$	(8,048)			$	(325)			$	(8,373)	Balance at December 31, 2021			289		$	—	$	(8,048)		$	(325)		$	(8,373)
Net Income	Net Income				623								623		Net Income							954						954
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature	Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature								(44)				(44)		Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature										(99)			(99)

Pension and post-retirement benefit plans (net of tax impact of $2 million)									7				7
Net gain on derivative instruments (net of tax impact of $22 million)									68				68
Pension and post-retirement benefit plans (net of tax impact of $8 million)															Pension and post-retirement benefit plans (net of tax impact of $8 million)										26			26
Net gain on derivative instruments (net of tax impact of $33 million)															Net gain on derivative instruments (net of tax impact of $33 million)										100			100
Comprehensive Income	Comprehensive Income												654		Comprehensive Income													981
Dividends declared	Dividends declared				(329)								(329)		Dividends declared							(491)						(491)
Repurchase of shares of Common Stock	Repurchase of shares of Common Stock	(5)	(37)		(520)								(557)		Repurchase of shares of Common Stock			(6)		(55)		(659)						(714)
Employee share-based award exercises	Employee share-based award exercises	1	(21)										(21)		Employee share-based award exercises			1		(24)								(24)
Share-based compensation events	Share-based compensation events		58										58		Share-based compensation events					79								79

Balance at June 30, 2022		285	$	—	$	(8,274)			$	(294)			$	(8,568)
Balance at September 30, 2022															Balance at September 30, 2022			284		$	—	$	(8,244)		$	(298)		$	(8,542)

See accompanying Notes to Condensed Consolidated Financial Statements.	See accompanying Notes to Condensed Consolidated Financial Statements.														See accompanying Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Tabular amounts in millions, except per share data)

Note 1 - Financial Statement Presentation

We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles in the United States (“GAAP”) for complete financial statements. Therefore, we suggest that the accompanying Financial Statements be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 Form 10-K”).

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over ~~56,000~~57,000 restaurants in more than 155 countries and territories. As of ~~June~~September 30, 2023, 98% of these restaurants were owned and operated by franchisees. The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza categories, respectively. The Habit Burger Grill is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

As of ~~June~~September 30, 2023, YUM consisted of four operating segments:

•The KFC Division which includes our worldwide operations of the KFC concept

•The Taco Bell Division which includes our worldwide operations of the Taco Bell concept

•The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept

•The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consist of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

Our preparation of the accompanying Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2022 Form 10-K, the results of the interim periods presented. Our results of operations, comprehensive income, cash flows and changes in shareholders' deficit for these interim periods are not necessarily indicative of the results to be expected for the full year.

Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective tax rate.

We have reclassified certain items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended ~~June~~September 30, 2023. These reclassifications had no effect on previously reported Net Income.

Russia Invasion of Ukraine

In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.

During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator. In April2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian company owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the ~~Rostik’s~~Rostik's brand. Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC

restaurants in Russia to Rostik's and to retain the Company's employees in Russia. We recorded a ~~loss in the quarter~~charge of

$4 $3 million to Other income (expense) during the year to date ended September 30, 2023 as the write-off of our net investment in KFC Russia, including the related cumulative foreign currency translation losses of $60 million, exceeded the consideration received from the sale which primarily included cash proceeds of $121 million.

Our operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed the resulting net profits or losses subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense).

Note 2 - Earnings Per Common Share (“EPS”)


		Quarter ended				Year to date					Quarter ended				Year to date
		2023		2022		2023		2022			2023		2022		2023		2022
Net Income	Net Income	$	418	$	224	$	718	$	623	Net Income	$	416	$	331	$	1,134	$	954

Weighted-average common shares outstanding (for basic calculation)	Weighted-average common shares outstanding (for basic calculation)	281		286		281		288		Weighted-average common shares outstanding (for basic calculation)	281		285		281		287
Effect of dilutive share-based employee compensation	Effect of dilutive share-based employee compensation	5		4		5		4		Effect of dilutive share-based employee compensation	5		4		5		4
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)	Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)	286		290		286		292		Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)	286		289		286		291

Basic EPS	Basic EPS	$	1.49	$	0.78	$	2.55	$	2.16	Basic EPS	$	1.48	$	1.16	$	4.03	$	3.33

Diluted EPS	Diluted EPS	$	1.46	$	0.77	$	2.51	$	2.13	Diluted EPS	$	1.46	$	1.14	$	3.97	$	3.28
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)	Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)	1.7		2.4		1.6		1.8		Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)	1.7		2.0		1.7		1.9

(a)These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.

Note 3 - Shareholders' Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years ended ~~June~~September 30, 2023 and 2022 as indicated below. All amounts exclude applicable transaction fees.


		Shares Repurchased (thousands)		Dollar Value of Shares Repurchased				Remaining Dollar Value of Shares that may be Repurchased			Shares Repurchased (thousands)		Dollar Value of Shares Repurchased				Remaining Dollar Value of Shares that may be Repurchased
Authorization Date	Authorization Date	2023	2022	2023		2022		2023		Authorization Date	2023	2022	2023		2022		2023
May 2021	May 2021	—	4,635	—		557		—		May 2021	—	5,987	—		714		—
September 2022	September 2022	387	—	50		—		1,700		September 2022	387	—	50		—		1,700
Total	Total	387	4,635	$	50	$	557	$	1,700	Total	387	5,987	$	50	$	714	$	1,700

In September 2022, our Board of Directors authorized share repurchases of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock through June 30, 2024. As of ~~June~~September 30, 2023, we have remaining capacity to repurchase up to $1.7 billion of Common Stock under the September 2022 authorization.

Changes in Accumulated other comprehensive loss (“AOCI”) are presented below.


		Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature		Pension and Post-Retirement Benefits		Derivative Instruments		Total			Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature		Pension and Post-Retirement Benefits		Derivative Instruments		Total
Balance at March 31, 2023, net of tax		$	(282)	$	(96)	$	7	$	(371)
Balance at June 30, 2023, net of tax										Balance at June 30, 2023, net of tax	$	(218)	$	(95)	$	20	$	(293)

OCI, net of tax	OCI, net of tax									OCI, net of tax

Gains (losses) arising during the period classified into AOCI, net of tax	Gains (losses) arising during the period classified into AOCI, net of tax	4		—		19		23		Gains (losses) arising during the period classified into AOCI, net of tax	(20)		—		6		(14)

(Gains) losses reclassified from AOCI, net of tax	(Gains) losses reclassified from AOCI, net of tax	60		1		(6)		55		(Gains) losses reclassified from AOCI, net of tax	—		—		(7)		(7)
		64		1		13		78			(20)		—		(1)		(21)
Balance at June 30, 2023, net of tax		$	(218)	$	(95)	$	20	$	(293)
Balance at September 30, 2023, net of tax										Balance at September 30, 2023, net of tax	$	(238)	$	(95)	$	19	$	(314)

Balance at December 31, 2022, net of tax	Balance at December 31, 2022, net of tax	$	(290)	$	(94)	$	15	$	(369)	Balance at December 31, 2022, net of tax	$	(290)	$	(94)	$	15	$	(369)

OCI, net of tax	OCI, net of tax									OCI, net of tax

Gains (losses) arising during the period classified into AOCI, net of tax	Gains (losses) arising during the period classified into AOCI, net of tax	12		(2)		13		23		Gains (losses) arising during the period classified into AOCI, net of tax	(8)		(2)		19		9

(Gains) losses reclassified from AOCI, net of tax	(Gains) losses reclassified from AOCI, net of tax	60		1		(8)		53		(Gains) losses reclassified from AOCI, net of tax	60		1		(15)		46
		72		(1)		5		76			52		(1)		4		55
Balance at June 30, 2023, net of tax		$	(218)	$	(95)	$	20	$	(293)
Balance at September 30, 2023, net of tax										Balance at September 30, 2023, net of tax	$	(238)	$	(95)	$	19	$	(314)

Note 4 - Other (Income) Expense

Quarter ended Year to date
6/30/2023 6/30/2022 6/30/2023 6/30/2022
Foreign exchange net (gain) loss $ 1 $ (8) $ 4 $ (12)
Impairment and closure expense — (1) 1 (1)
Other 4 5 10 3
Other (income) expense $ 5 $ (4) $ 15 $ (10)

~~Other (income) expense includes a $4 million loss in the quarter and year to date ended June 30, 2023, related to the sale of our KFC Russia business.~~


	Quarter ended				Year to date
	9/30/2023		9/30/2022		9/30/2023		9/30/2022
Foreign exchange net (gain) loss	$	4	$	4	$	8	$	(8)
Impairment and closure expense	1		1		2		—
Other	(6)		5		4		8
Other (income) expense	$	(1)	$	10	$	14	$	—

Note 5 - Supplemental Balance Sheet Information

Accounts and Notes Receivable, net

The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements. Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets. Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate.


		6/30/2023		12/31/2022			9/30/2023		12/31/2022
Accounts and notes receivable, gross	Accounts and notes receivable, gross	$	702	$	685	Accounts and notes receivable, gross	$	692	$	685
Allowance for doubtful accounts	Allowance for doubtful accounts	(46)		(37)		Allowance for doubtful accounts	(45)		(37)
Accounts and notes receivable, net	Accounts and notes receivable, net	$	656	$	648	Accounts and notes receivable, net	$	647	$	648

Property, Plant and Equipment, net


		6/30/2023		12/31/2022			9/30/2023		12/31/2022
Property, plant and equipment, gross	Property, plant and equipment, gross	$	2,466	$	2,454	Property, plant and equipment, gross	$	2,462	$	2,454
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(1,304)		(1,283)		Accumulated depreciation and amortization	(1,305)		(1,283)
Property, plant and equipment, net	Property, plant and equipment, net	$	1,162	$	1,171	Property, plant and equipment, net	$	1,157	$	1,171

Assets held-for-sale totaled $6 million and $190 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Liabilities held-for-sale totaled $2 million and $65 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively, and are included in Accounts payable and other current liabilities in our Condensed Consolidated Balance Sheets. Assets and liabilities held-for-sale as of December 31, 2022, primarily included the assets and liabilities of our KFC Russia business.


Other Assets	Other Assets	6/30/2023		12/31/2022		Other Assets	9/30/2023		12/31/2022
Operating lease right-of-use assets(a)	Operating lease right-of-use assets(a)	$	753	$	742	Operating lease right-of-use assets(a)	$	763	$	742

Franchise incentives	Franchise incentives	185		172		Franchise incentives	182		172
Investment in Devyani International Limited (See Note 12)	Investment in Devyani International Limited (See Note 12)	122		116		Investment in Devyani International Limited (See Note 12)	137		116
Other	Other	280		294		Other	278		294
Other assets	Other assets	$	1,340	$	1,324	Other assets	$	1,360	$	1,324

(a) Non-current operating lease liabilities of ~~$744~~$752 million and $731 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively, are included in Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets.

Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows


		6/30/2023		12/31/2022			9/30/2023		12/31/2022
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets	Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets	$	437	$	367	Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets	$	656	$	367
Restricted cash included in Prepaid expenses and other current assets(a)	Restricted cash included in Prepaid expenses and other current assets(a)	188		220		Restricted cash included in Prepaid expenses and other current assets(a)	185		220
Restricted cash and restricted cash equivalents included in Other assets(b)	Restricted cash and restricted cash equivalents included in Other assets(b)	34		35		Restricted cash and restricted cash equivalents included in Other assets(b)	34		35
Cash and restricted cash related to KFC Russia included in assets held-for-sale	Cash and restricted cash related to KFC Russia included in assets held-for-sale	—		25		Cash and restricted cash related to KFC Russia included in assets held-for-sale	—		25
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows	$	659	$	647	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows	$	875	$	647

(a) Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments.

(b) Primarily trust accounts related to our self-insurance program.

Note 6 - Income Taxes


		Quarter ended						Year to date							Quarter ended						Year to date
		2023			2022			2023			2022				2023			2022			2023			2022
Income tax (benefit) provision	Income tax (benefit) provision	$	60		$	166		$	131		$	165		Income tax (benefit) provision	$	89		$	116		$	220		$	281
Effective tax rate	Effective tax rate	12.6		%	42.6		%	15.4		%	21.0		%	Effective tax rate	17.7		%	25.8		%	16.3		%	22.7		%

Our ~~second~~third quarter effective tax rate was lower than the prior year primarily due to the following:

•~~$71 million of net tax expense recorded~~Tax benefit recognized in the quarter ended ~~June~~September 30, 2023, as compared to tax expense recognized in the quarter ended September 30, 2022, ~~resulting from~~associated with adjustments related to prior year taxes.

•Higher tax benefit recognized in the ~~Company’s decision~~quarter ended September 30, 2023, associated with U.S. interest expense deductions and U.S. foreign tax credits.

Our year to ~~exit KFC Russia. We remeasured and reassessed~~date effective tax rate was lower than the ~~need for a valuation allowance on deferred tax assets in Switzerland~~prior year primarily due to the ~~then expected reduction in~~items discussed above, as well as the tax basis of intellectual property rights associated with the loss of the Russian royalty income. In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference was going to reverse by way of sale.following:

•$18 million tax benefit recorded in the ~~quarter~~year to date ended ~~June~~September 30, 2023, associated with the reversal of a reserve established in prior years due to the favorable resolution of a tax audit in a foreign jurisdiction.

•$10 million tax benefit recorded in the ~~quarter~~year to date ended ~~June~~September 30, 2023, associated with establishing additional net operating loss carryforward deferred tax assets in a foreign jurisdiction.

~~Our year to date effective tax rate was lower than the prior year primarily due to the items discussed above, partially offset by:~~

•$82 million of tax benefit ~~discretely~~ recorded in the ~~quarter~~year to date ended ~~March 31,~~September 30, 2022, from the release of a valuation allowance on foreign tax credit carryforwards. In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations made foreign taxes paid to certain countries no longer creditable in the U.S., which was expected to result in additional foreign tax credit carryforward utilization prospectively. As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards. The U.S. Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes. As such, the valuation allowance on foreign tax credit carryforwards that was released in the quarter ended March 31, 2022, was re-established in the quarter ended December 31, 2022.

•$69 million of net tax expense recorded in the year to date ended September 30, 2022, resulting from the Company’s decision to exit KFC Russia. We remeasured and reassessed the need for a valuation allowance on deferred tax assets in Switzerland due to the expected reduction in the tax basis of intellectual property rights associated with the loss of the Russian royalty income. In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference would reverse by way of sale.

Note 7 - Revenue Recognition

Disaggregation of Total Revenues

The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.

Quarter ended 6/30/2023
KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Total
U.S.
Company sales $ 17 $ 253 $ 4 $ 139 $ 413
Franchise revenues 49 194 66 2 311
Property revenues 3 10 1 — 14
Franchise contributions for advertising and other services 8 148 74 1 231
China
Franchise revenues 61 — 16 — 77
Other
Company sales 98 — — — 98
Franchise revenues 290 14 65 — 369
Property revenues 13 — 1 — 14
Franchise contributions for advertising and other services 143 2 15 — 160
$ 682 $ 621 $ 242 $ 142 $ 1,687


		Quarter ended 6/30/2022											Quarter ended 9/30/2023
		KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total				KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.	U.S.											U.S.
Company sales	Company sales	$	16	$	243	$	5	$	136	$	400	Company sales		$	15	$	256	$	2	$	135	$	408
Franchise revenues	Franchise revenues	47		178		64		2		291		Franchise revenues		48		196		64		1		309
Property revenues	Property revenues	3		10		1		—		14		Property revenues		4		9		1		1		15
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	7		142		72		—		221		Franchise contributions for advertising and other services		9		152		72		—		233

China	China											China
Franchise revenues	Franchise revenues	48		—		13		—		61		Franchise revenues		66		—		18		—		84

Other	Other											Other
Company sales	Company sales	99		—		—		—		99		Company sales		102		—		—		—		102
Franchise revenues	Franchise revenues	283		11		63		—		357		Franchise revenues		296		13		67		—		376
Property revenues	Property revenues	13		—		1		—		14		Property revenues		12		—		—		—		12
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	161		2		16		—		179		Franchise contributions for advertising and other services		148		3		18		—		169
		$	677	$	586	$	235	$	138	$	1,636			$	700	$	629	$	242	$	137	$	1,708


		Year to date 6/30/2023												Quarter ended 9/30/2022
			KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total			KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.	U.S.												U.S.
Company sales	Company sales		$	33	$	482	$	9	$	269	$	793	Company sales	$	16	$	234	$	4	$	129	$	383
Franchise revenues	Franchise revenues		95		372		136		3		606		Franchise revenues	47		173		65		—		285
Property revenues	Property revenues		6		20		2		1		29		Property revenues	4		10		1		1		16
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services		16		288		152		1		457		Franchise contributions for advertising and other services	7		136		72		1		216

China	China												China
Franchise revenues	Franchise revenues		127		—		34		—		161		Franchise revenues	61		—		17		—		78

Other	Other												Other
Company sales	Company sales		192		—		—		—		192		Company sales	96		—		—		—		96
Franchise revenues	Franchise revenues		574		27		131		—		732		Franchise revenues	291		13		62		—		366
Property revenues	Property revenues		26		—		1		—		27		Property revenues	15		—		—		—		15
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services		300		4		31		—		335		Franchise contributions for advertising and other services	167		2		16		—		185
			$	1,369	$	1,193	$	496	$	274	$	3,332		$	704	$	568	$	237	$	131	$	1,640


		Year to date 6/30/2022												Year to date 9/30/2023
			KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total				KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.	U.S.												U.S.
Company sales	Company sales		$	31	$	457	$	10	$	261	$	759	Company sales		$	48	$	738	$	11	$	404	$	1,201
Franchise revenues	Franchise revenues		92		335		128		3		558		Franchise revenues		143		568		200		4		915
Property revenues	Property revenues		6		21		2		—		29		Property revenues		10		29		3		2		44
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services		13		265		144		—		422		Franchise contributions for advertising and other services		25		440		224		1		690

China	China												China
Franchise revenues	Franchise revenues		109		—		29		—		138		Franchise revenues		193		—		52		—		245

Other	Other												Other
Company sales	Company sales		210		—		—		—		210		Company sales		294		—		—		—		294
Franchise revenues	Franchise revenues		543		22		133		—		698		Franchise revenues		870		40		198		—		1,108
Property revenues	Property revenues		27		—		1		—		28		Property revenues		38		—		1		—		39
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services		306		3		32		—		341		Franchise contributions for advertising and other services		448		7		49		—		504
			$	1,337	$	1,103	$	479	$	264	$	3,183			$	2,069	$	1,822	$	738	$	411	$	5,040


	Year to date 9/30/2022
		KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.
Company sales		$	47	$	691	$	14	$	390	$	1,142
Franchise revenues		139		508		193		3		843
Property revenues		10		31		3		1		45
Franchise contributions for advertising and other services		20		401		216		1		638

China
Franchise revenues		170		—		46		—		216

Other
Company sales		306		—		—		—		306
Franchise revenues		834		35		195		—		1,064
Property revenues		42		—		1		—		43
Franchise contributions for advertising and other services		473		5		48		—		526
		$	2,041	$	1,671	$	716	$	395	$	4,823

Contract Liabilities

Our contract liabilities are comprised of unamortized upfront fees received from franchisees and are presented within Accounts payable and other current liabilities and Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets. A summary of significant changes to the contract liability balance during 2023 is presented below.


	Deferred Franchise Fees
Balance at December 31, 2022	$	434
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period	~~(43)~~(62)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period	3758
Other(a)	~~(9)~~(14)
Balance at ~~June~~September 30, 2023	$	~~419~~416

(a) Includes impact of foreign currency translation as well as the recognition of deferred franchise fees into Refranchising (gain) loss upon the termination of existing franchise agreements when entering into master franchise agreements.

We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows:


Less than 1 year	$	6971
1 - 2 years	6361
2 - 3 years	5756
3 - 4 years	50
4 - 5 years	4342
Thereafter	~~137~~136
Total	$	~~419~~416

Note 8 - Reportable Operating Segments

We identify our operating segments based on management responsibility. The following tables summarize Revenues and Operating Profit for each of our reportable operating segments:


	Quarter ended				Year to date
Revenues	2023		2022		2023		2022
KFC Division	$	700	$	704	$	2,069	$	2,041
Taco Bell Division	629		568		1,822		1,671
Pizza Hut Division	242		237		738		716
Habit Burger Grill Division	137		131		411		395
	$	1,708	$	1,640	$	5,040	$	4,823


	Quarter ended				Year to date
Operating Profit	2023		2022		2023		2022
KFC Division	$	344	$	304	$	975	$	888
Taco Bell Division	226		204		658		604
Pizza Hut Division	97		92		292		287
Habit Burger Grill Division	(2)		(4)		(4)		(14)
Corporate and unallocated G&A expenses(a)	(68)		(67)		(238)		(203)

Unallocated Franchise and property income (expenses)(a)	1		—		(1)		(4)
Unallocated Refranchising gain (loss)	19		3		40		15
Unallocated Other income (expense)(a)	(4)		14		(13)		36
Operating Profit	$	613	$	546	$	1,709	$	1,609
Investment income (expense), net(b)	16		27		21		19
Other pension income (expense)	2		(2)		5		(3)
Interest expense, net(c)	(126)		(124)		(381)		(390)
Income before income taxes	$	505	$	447	$	1,354	$	1,235

Quarter ended Year to date
Revenues 2023 2022 2023 2022
KFC Division $ 682 $ 677 $ 1,369 $ 1,337
Taco Bell Division 621 586 1,193 1,103
Pizza Hut Division 242 235 496 479
Habit Burger Grill Division 142 138 274 264
$ 1,687 $ 1,636 $ 3,332 $ 3,183

Quarter ended Year to date
Operating Profit 2023 2022 2023 2022
KFC Division $ 326 $ 293 $ 631 $ 584
Taco Bell Division 228 215 432 400
Pizza Hut Division 91 93 195 195
Habit Burger Grill Division 3 (2) (2) (10)
Corporate and unallocated G&A expenses(a)
(86) (65) (170) (136)
Unallocated Franchise and property expenses(a)
(1) (4) (2) (4)
Unallocated Refranchising gain (loss) 17 8 21 12
Unallocated Other income (expense)(a)
(5) 16 (9) 22
Operating Profit $ 573 $ 554 $ 1,096 $ 1,063
Investment income (expense), net(b)
29 (15) 5 (8)
Other pension income (expense) 1 (1) 3 (1)
Interest expense, net(c)
(125) (148) (255) (266)
Income before income taxes $ 478 $ 390 $ 849 $ 788

Our chief operating decision maker (“CODM”) does not consider the impact of Corporate and unallocated amounts when assessing Divisional segment performance. As such, we do not allocate such amounts to our Divisional segments for performance reporting purposes.

(a)Our operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer (see Note 1), within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such net profits and losses subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense). As a result, we reclassed net operating losses of $1 million from KFC Division Other income (expense) to Unallocated Other income (expense) during the year to date ended ~~June~~September 30, 2023, and net operating profit of $9$19 million and ~~$11~~$30 million from Divisional Other income (expense) to Unallocated Other income (expense) during the quarter and year to date ended ~~June~~September 30, 2022, respectively. Additionally, we recorded income of $1 million and a $4charge of $3 million ~~loss~~ to Unallocated Other income (expense) during the quarter and year to date ended ~~June~~September 30, 2023, respectively, from the sale of our KFC Russia business.

Also included in Unallocated Other income (expense) were $1 million in foreign exchange losses attributable to fluctuations in the value of the Russian Ruble during the ~~quarter and~~ year to date ended ~~June~~September 30, 2023, and foreign exchange losses of $1 million and foreign exchange gains of ~~$11 million and $16~~$15 million during the quarter and year to date ended ~~June~~September 30, 2022, respectively. Additionally, we recorded ~~charges~~expense of ~~$3 million and~~ $4 million to Corporate and unallocated G&A expenses during the year to date ended September 30, 2023, and income of $1 million and $2expense of $1 million to Unallocated Franchise and property expenses during the quarter and year to date ended ~~June~~September 30, 2023, respectively, for certain expenses related to the disposition of the businesses and other costs related to our exit from Russia. We recorded similar charges of $2$1 million and $4$3 million to Corporate and Unallocated G&A expenses and $1 million and $5 million to Unallocated Franchise and property expenses ~~respectively,~~ during the quarter and year to date ended ~~June~~September 30, ~~2022.~~2022, respectively.

(b)Includes changes in the value of our investment in Devyani International Limited (see Note 12).

(c)Includes a $23 million call premium and $5 million of unamortized debt issuance costs written off related to the redemption of the 2025 Notes (as discussed in our 2022 Form 10-K) during the ~~quarter~~year to date ended ~~June~~September 30, 2022.

Note 9 - Pension Benefits

We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded. We fund our other U.S. plans as benefits are paid. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans. Additionally, these two plans in the U.S. are currently closed to new hourly participants.

The components of net periodic benefit cost associated with our U.S. pension plans are as follows:


		Quarter ended				Year to date					Quarter ended				Year to date
		2023		2022		2023		2022			2023		2022		2023		2022
Service cost	Service cost	$	1	$	1	$	2	$	3	Service cost	$	1	$	2	$	3	$	5
Interest cost	Interest cost	11		8		21		16		Interest cost	10		8		31		24
Expected return on plan assets	Expected return on plan assets	(13)		(11)		(25)		(23)		Expected return on plan assets	(12)		(11)		(37)		(34)
Amortization of net (gain) / loss	Amortization of net (gain) / loss	(1)		2		(1)		5		Amortization of net (gain) / loss	—		3		(1)		8
Amortization of prior service cost	Amortization of prior service cost	1		2		1		3		Amortization of prior service cost	—		1		1		4
Net periodic benefit cost	Net periodic benefit cost	$	(1)	$	2	$	(2)	$	4	Net periodic benefit cost	$	(1)	$	3	$	(3)	$	7

Additional loss recognized due to settlements(a)										Additional loss recognized due to settlements(a)	$	—	$	2	$	—	$	2

(a) Loss is a result of settlement transactions which exceeded the sum of annual service and interest costs for the applicable plan. This loss was recorded in Other pension (income) expense.

Note 10 - Short-term Borrowings and Long-term Debt


Short-term Borrowings	Short-term Borrowings	6/30/2023		12/31/2022		Short-term Borrowings	9/30/2023		12/31/2022
Current maturities of long-term debt	Current maturities of long-term debt	$	381	$	405	Current maturities of long-term debt	$	376	$	405
Less current portion of debt issuance costs and discounts	Less current portion of debt issuance costs and discounts	(7)		(7)		Less current portion of debt issuance costs and discounts	(3)		(7)
Short-term borrowings	Short-term borrowings	$	374	$	398	Short-term borrowings	$	373	$	398

Long-term Debt	Long-term Debt					Long-term Debt
Securitization Notes	Securitization Notes	$	3,753	$	3,772	Securitization Notes	$	3,743	$	3,772
Subsidiary Senior Unsecured Notes	Subsidiary Senior Unsecured Notes	750		750		Subsidiary Senior Unsecured Notes	750		750
Revolving Facility	Revolving Facility	30		279		Revolving Facility	—		279
Term Loan A Facility	Term Loan A Facility	727		736		Term Loan A Facility	722		736
Term Loan B Facility	Term Loan B Facility	1,466		1,474		Term Loan B Facility	1,463		1,474
YUM Senior Unsecured Notes	YUM Senior Unsecured Notes	4,875		4,875		YUM Senior Unsecured Notes	4,875		4,875
Finance lease obligations	Finance lease obligations	52		57		Finance lease obligations	50		57
		$	11,653	$	11,943		$	11,603	$	11,943
Less long-term portion of debt issuance costs and discounts	Less long-term portion of debt issuance costs and discounts	(78)		(85)		Less long-term portion of debt issuance costs and discounts	(75)		(85)
Less current maturities of long-term debt	Less current maturities of long-term debt	(381)		(405)		Less current maturities of long-term debt	(376)		(405)
Long-term debt	Long-term debt	$	11,194	$	11,453	Long-term debt	$	11,152	$	11,453

Details of our Short-term borrowings and Long-term debt as of December 31, 2022 can be found within our 2022 Form 10-K.

Cash paid for interest during the year to date ended ~~June~~September 30, 2023, was ~~$293~~$367 million. Excluding the $28 million associated with the extinguishment of the 2025 Notes (as discussed in our 2022 Form 10-K), cash paid for interest during the year to date ended ~~June~~September 30, 2022 was ~~$239~~$331 million.

Note 11 - Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates. Our use of foreign currency contracts to manage foreign currency exchange rates associated with certain foreign currency denominated intercompany receivables and payables is currently not significant.

Interest Rate Swaps

We have entered into interest rate swaps, with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments primarily under our Term Loan B Facility. At both ~~June~~September 30, 2023 and December 31,

2022, we had interest rate swaps expiring in March 2025 with notional amounts of $1.5 billion. These interest rate swaps have been designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in expected future interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of ~~June~~September 30, 2023 or December 31, 2022.

Gains or losses on the interest rate swaps are reported as a component of AOCI and reclassified into Interest expense, net in our Condensed Consolidated Statements of Income in the same period or periods during which the related hedged interest payments affect earnings. Through ~~June~~September 30, 2023, the swaps were highly effective cash flow hedges.

Gains and losses on these interest rate swaps recognized in OCI and reclassifications from AOCI into Net Income were as follows:


		Quarter ended								Year to date									Quarter ended								Year to date
		Gains/(Losses) Recognized in OCI				(Gains)/Losses Reclassified from AOCI into Net Income				Gains/(Losses) Recognized in OCI				(Gains)/Losses Reclassified from AOCI into Net Income					Gains/(Losses) Recognized in OCI				(Gains)/Losses Reclassified from AOCI into Net Income				Gains/(Losses) Recognized in OCI				(Gains)/Losses Reclassified from AOCI into Net Income
		2023		2022		2023		2022		2023		2022		2023		2022			2023		2022		2023		2022		2023		2022		2023		2022

Interest rate swaps	Interest rate swaps	$	24	$	12	$	(7)	$	9	$	17	$	71	$	(12)	$	20	Interest rate swaps	$	6	$	40	$	(8)	$	3	$	23	$	111	$	(20)	$	23

Income tax benefit/(expense)	Income tax benefit/(expense)	(7)		(3)		2		(2)		(5)		(17)		3		(5)		Income tax benefit/(expense)	(1)		(10)		2		(1)		(6)		(27)		5		(6)

As of ~~June~~September 30, 2023, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is ~~$33~~$31 million, based on current ~~SOFR~~Secured Overnight Financing Rate ("SOFR") interest rates.

Total Return Swaps

We have entered into total return swap derivative contracts, with the objective of reducing our exposure to market-driven changes in certain of the liabilities associated with compensation deferrals into our Executive Income Deferral (“EID”) plan. While these total return swaps represent economic hedges, we have not designated them as hedges for accounting purposes. As a result, the changes in the fair value of these derivatives are recognized immediately in earnings within General and administrative expenses in our Condensed Consolidated Statements of Income largely offsetting the changes in the associated EID liabilities. The fair value associated with the total return swaps as of both ~~June~~September 30, 2023 and December 31, 2022, was not significant.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into contracts with major financial institutions carefully selected based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. At ~~June~~September 30, 2023, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.

See Note 12 for the fair value of our derivative assets and liabilities.

Note 12 - Fair Value Disclosures

As of ~~June~~September 30, 2023, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings and accounts payable ~~and borrowings under our Revolving Facility~~ approximated their fair values because of the short-term nature of these instruments. The fair value of our notes receivable, net of allowances, and lease guarantees, less reserves for expected losses, approximates their carrying value. The following table presents the carrying value and estimated fair value of the Company’s debt obligations:

1819


		6/30/2023				12/31/2022					9/30/2023				12/31/2022
		Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)			Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)

Securitization Notes(a)	Securitization Notes(a)	$	3,753	$	3,296	$	3,772	$	3,273	Securitization Notes(a)	$	3,743	$	3,266	$	3,772	$	3,273
Subsidiary Senior Unsecured Notes(b)	Subsidiary Senior Unsecured Notes(b)	750		729		750		731		Subsidiary Senior Unsecured Notes(b)	750		724		750		731
Term Loan A Facility(b)	Term Loan A Facility(b)	727		723		736		729		Term Loan A Facility(b)	722		719		736		729
Term Loan B Facility(b)	Term Loan B Facility(b)	1,466		1,458		1,474		1,459		Term Loan B Facility(b)	1,463		1,467		1,474		1,459
YUM Senior Unsecured Notes(b)	YUM Senior Unsecured Notes(b)	4,875		4,605		4,875		4,473		YUM Senior Unsecured Notes(b)	4,875		4,423		4,875		4,473

(a) We estimated the fair value of the Securitization Notes using market quotes and calculations. The markets in which the Securitization Notes trade are not considered active markets.

(b) We estimated the fair value of the YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility and Term Loan B Facility using market quotes and calculations based on market rates.

Recurring Fair Value Measurements

The Company has interest rate swaps and other investments, all of which are required to be measured at fair value on a recurring basis (see Note 11 for discussion regarding derivative instruments). The following table presents fair values for those assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall.


				Fair Value							Fair Value
		Condensed Consolidated Balance Sheet	Level	6/30/2023		12/31/2022			Condensed Consolidated Balance Sheet	Level	9/30/2023		12/31/2022
Assets	Assets							Assets
Investments	Investments	Other assets	1	$	124	$	118	Investments	Other assets	1	$	139	$	118

Investments	Investments	Other assets	3	5		5		Investments	Other assets	3	5		5
Interest Rate Swaps	Interest Rate Swaps	Prepaid expenses and other current assets	2	33		26		Interest Rate Swaps	Prepaid expenses and other current assets	2	31		26
Interest Rate Swaps	Interest Rate Swaps	Other assets	2	14		16		Interest Rate Swaps	Other assets	2	14		16

The fair value of the Company’s interest rate swaps were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration based on observable inputs.

Investments primarily include our approximate 5% minority interest in Devyani International Limited (“Devyani”), a franchise entity that operates KFC and Pizza Hut restaurants in India, with a fair value of ~~$122~~$137 million and $116 million at ~~June~~September 30, 2023 and December 31, 2022, respectively. For the quarter and year to date ended ~~June~~September 30, 2023, we recognized pre-tax investment gains of ~~$28~~$16 million and $5$21 million, respectively, related to changes in fair value of our investment in Devyani.

Note 13 - Contingencies

Internal Revenue Service Proposed Adjustment

As a result of an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 through 2015, in August 2022, we received a Revenue Agent’s Report (“RAR”) from the IRS asserting an underpayment of tax of $2.1 billion plus $418 million in penalties for the 2014 fiscal year. Additionally, interest on the underpayment is estimated to be approximately ~~$880~~$940 million through the ~~second~~third quarter of 2023. The proposed underpayment relates primarily to a series of reorganizations we undertook during that year in connection with the business realignment of our corporate and management reporting structure along brand lines. The IRS asserts that these transactions resulted in taxable distributions of approximately $6.0 billion.

We disagree with the IRS’s position as asserted in the RAR and intend to contest that position vigorously. In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties. We have received the IRS Examination Division’s Rebuttal to our Protest and the case has been accepted by the IRS Office of Appeals.

1920

The Company does not expect resolution of this matter within twelve months and cannot predict with certainty the timing of such resolution. The Company believes that it is more likely than not the Company’s tax position will be sustained; therefore, no reserve is recorded with respect to this matter.

An unfavorable resolution of this matter could have a material, adverse impact on our Condensed Consolidated Financial Statements in future periods.

Lease Guarantees

As a result of having assigned our interest in obligations under real estate leases as a condition to the refranchising of certain Company-owned restaurants, and guaranteeing certain other leases, we are frequently secondarily liable on lease agreements. These leases have varying terms, the latest of which expires in 2065. As of ~~June~~September 30, 2023, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately ~~$400~~$375 million. The present value of these potential payments discounted at our pre-tax cost of debt at ~~June~~September 30, 2023, was approximately ~~$325~~$300 million. Our franchisees are the primary lessees under the vast majority of these leases. We generally have cross-default provisions with these franchisees that would put them in default of their franchise agreement in the event of non-payment under the lease. We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases, although such risk may not be reduced in the context of a bankruptcy or other similar restructuring of a large franchisee or group of franchisees. The liability recorded for our expected losses under such leases as of ~~June~~September 30, 2023, was not material.

Legal Proceedings

We are subject to various claims and contingencies related to lawsuits, real estate, environmental and other matters arising in the normal course of business. An accrual is recorded with respect to claims or contingencies for which a loss is determined to be probable and reasonably estimable.

India Regulatory Matter

Yum! Restaurants India Private Limited (“YRIPL”), a YUM subsidiary that operates KFC and Pizza Hut restaurants in India, is the subject of a regulatory enforcement action in India (the “Action”). The Action alleges, among other things, that KFC International Holdings, Inc. and Pizza Hut International failed to satisfy certain conditions imposed by the Secretariat for Industrial Approval in 1993 and 1994 when those companies were granted permission for foreign investment and operation in India. The conditions at issue include an alleged minimum investment commitment and store build requirements as well as limitations on the remittance of fees outside of India.

The Action originated with a complaint and show cause notice filed in 2009 against YRIPL by the Deputy Director of the Directorate of Enforcement (“DOE”) of the Indian Ministry of Finance following an income tax audit for the years 2002 and 2003. The matter was argued at various hearings in 2015, but no order was issued. Following a change in the incumbent official holding the position of Special Director of DOE (the “Special Director”), the matter resumed in 2018 and several additional hearings were conducted.

On January 29, 2020, the Special Director issued an order imposing a penalty on YRIPL and certain former directors of approximately Indian Rupee 11 billion, or approximately $135 million. Of this amount, $130 million relates to the alleged failure to invest a total of $80 million in India within an initial seven-year period. We have been advised by external counsel that the order is flawed and have filed a writ petition with the Delhi High Court, which granted an interim stay of the penalty order on March 5, 2020. In November 2022, YRIPL was notified that an administrative tribunal bench had been constituted to hear an appeal by DOE of certain findings of the January 2020 order, including claims that certain charges had been wrongly dropped and that an insufficient amount of penalty had been imposed. A hearing with the administrative tribunal that had been scheduled for August has been rescheduled to December 4, 2023. The stay order remains in effect and the next hearing in the Delhi High Court that had been scheduled for ~~May~~October has been rescheduled to ~~October 5,~~December 14, 2023.We deny liability and intend to continue vigorously defending this matter. We do not consider the risk of any significant loss arising from this order to be probable.

Other Matters

We are currently engaged in various other legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time. However, based upon consultation with legal counsel, we are of the opinion

that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Condensed Consolidated Financial Statements.

2122

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction and Overview

The following Management's Discussion and Analysis (“MD&A”), should be read in conjunction with the unaudited Condensed Consolidated Financial Statements (“Financial Statements”), the Forward-Looking Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, (“2022 Form 10-K”). All Note references herein refer to the Notes to the Financial Statements. Tabular amounts are displayed in millions of U.S. dollars except per share and unit count amounts, or as otherwise specifically identified. Percentages may not recompute due to rounding.

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over ~~56,000~~57,000 restaurants in more than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza categories, respectively. The Habit Burger Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over ~~56,000~~57,000 restaurants, 98% are operated by franchisees.

YUM currently consists of four operating segments:

•The KFC Division which includes our worldwide operations of the KFC concept

•The Taco Bell Division which includes our worldwide operations of the Taco Bell concept

•The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept

•The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

Through our Recipe for Good Growth we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale.

Our global citizenship and sustainability strategy is reflected in our Good agenda, which includes our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.

Our Growth agenda is based on four key drivers:

•Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success

•Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences

•Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion

•Bold Restaurant Development: Drive market and franchise expansion with strong economics and value

We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company's performance. Throughout this MD&A, we commonly discuss the following performance metrics:

•Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base. Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends.

•Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales. We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit

2223

growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.

•System sales and System sales excluding the impacts of foreign currency translation (“FX”) reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts' products. We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount. Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts' products are not included in Company sales on the Condensed Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company's revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.

As of the beginning of the second quarter of 2022, as a result of our progress towards exiting Russia and our decision to reclass future net profits attributable to Russia subsequent to the date of their invasion of Ukraine from the Division segments in which those profits were earned to Unallocated Other income (see Notes 1 and 8), we elected to remove all Russia units from our unit count as well as to begin excluding those units' associated sales from our system sales totals. We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut unit counts, respectively. These units were treated similar to permanent store closures for purposes of our same-store sales calculations and thus they were removed from our same-store sales calculations beginning April 1, 2022.

In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”), the Company provides the following non-GAAP measurements:

•Diluted Earnings Per Share excluding Special Items (as defined below);

•Effective Tax Rate excluding Special Items;

•Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally;

•Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below).

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.

Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance.

Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of our Condensed Consolidated Statements of Income. Company restaurant expenses include those expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, cost of restaurant-level labor, rent, depreciation and amortization of restaurant-level assets and advertising expenses incurred by and on behalf of that Company restaurant. Company restaurant margin as a percentage of sales (“Company restaurant margin %”) is defined as Company restaurant profit divided by Company sales. We use Company restaurant profit for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Company restaurant profit provides useful information to investors as to the profitability of our Company-owned restaurants. In calculating Company restaurant profit, the Company excludes revenues and expenses directly associated with our franchise operations as well as non-restaurant-level costs included in General and administrative expenses, some of which may support Company-owned restaurant operations. The Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

2324

Certain performance metrics and non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.

Results of Operations

Summary

All comparisons within this summary are versus the same period a year ago. The year to date Financial Highlights ~~tables~~table below ~~reflect~~reflects the impact of removing the system sales of all Russian units from our system sales totals as of the beginning of the second quarter of 2022.

Quarterly Financial Highlights:

% Change

System Sales, ex FX

Same-Store Sales

Units

GAAP Operating Profit

Core Operating Profit

KFC Division

+1912

+13

~~+11~~

~~+16~~14

Taco Bell Division

+711

+11

Pizza Hut Division

~~Pizza Hut Division~~

~~(2)~~

YUM

+13

+910

+46

+12

+16

Year to date Financial Highlights:

% Change

System Sales, ex FX

Same-Store Sales

Units

GAAP Operating Profit

Core Operating Profit

KFC Division

+1514

+11

+79

+10

+14

Taco Bell Division

+910

+67

+89

Pizza Hut Division

+57

~~Even~~+4

+42

YUM

+1211

+87

+36

+1113

Additionally:

•As of the beginning of the second quarter of 2022, we elected to remove 1,165 Russia units from our unit count and begin excluding their associated sales from our total system sales. We removed 1,112 units and 53 units in Russia from our KFC and Pizza Hut units counts, respectively. As a result:

◦Year to date YUM and KFC Division system sales growth excluding foreign currency as shown above were each negatively impacted by 1 ~~and 2~~ percentage ~~points, respectively.~~point.

•Also, we elected to reclass future net profits attributable to Russia subsequent to the date of invasion from the Division segments in which those profits were earned to Unallocated Other income and reflected such profits as a Special Item as they are not indicative of our ongoing results. As a result of the decline in Core Operating Profits attributable to Russia:

◦~~Both the quarter and year~~Year to date YUM and KFC Division Core Operating Profit as shown above were each negatively impacted by 1 ~~and 2~~ percentage ~~points, respectively.~~point.

•Foreign currency translation unfavorably impacted Divisional Operating Profit by ~~$17~~$5 million and ~~$44~~$49 million for the quarter and year to date ended ~~June~~September 30, 2023, respectively.


		Second Quarter			Year to date			Third Quarter			Year to date
		2023	2022	% Change	2023	2022	% Change			2023	2022	% Change	2023	2022	% Change
GAAP EPS	GAAP EPS	$1.46	$0.77	+89	$2.51	$2.13	+18		GAAP EPS	$1.46	$1.14	+27	$3.97	$3.28	+21
Less Special Items EPS	Less Special Items EPS	$0.05	$(0.29)	NM	$0.05	$0.02	NM		Less Special Items EPS	$0.02	$0.05	NM	$0.06	$0.07	NM
EPS Excluding Special Items	EPS Excluding Special Items	$1.41	$1.06	+33	$2.46	$2.11	+17		EPS Excluding Special Items	$1.44	$1.09	+32	$3.91	$3.21	+22

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•In addition to the aforementioned factors impacting Operating Profit, our ~~2023~~ diluted EPS, excluding Special Items, was favorably impacted by ~~$0.09~~$0.05 and ~~$0.02~~$0.07 for the quarter and year to date ended ~~June~~September 30, 2023, respectively, ~~from mark to market adjustments from unrealized investment gains~~ and ~~was unfavorably impacted by $0.04~~$0.08 and ~~$0.02~~$0.06 for the quarter and year to date ended ~~June~~September 30, 2022, respectively, from mark to market adjustments from unrealized investment ~~losses.~~gains. Foreign currency translation ~~unfavorably~~negatively impacted our diluted EPS, excluding Special Items, by approximately ~~$0.05~~$0.01 and ~~$0.12~~$0.14 for the quarter and year to date ended ~~June~~September 30, 2023, respectively.

•Gross unit openings for the quarter were ~~1,025~~1,130 units resulting in ~~742~~849 net new units. Gross unit openings for the year to date were ~~1,771~~2,901 units resulting in ~~1,065~~1,914 net new units.

Worldwide

GAAP Results


		Quarter ended								Year to date									Quarter ended								Year to date
		2023			2022			% B/(W)		2023			2022			% B/(W)			2023			2022			% B/(W)		2023			2022			% B/(W)
Company sales	Company sales	$	511		$	499		3		$	985		$	969		2		Company sales	$	510		$	479		6		$	1,495		$	1,448		3
Franchise and property revenues	Franchise and property revenues	785			737			6		1,555			1,451			7		Franchise and property revenues	796			760			5		2,351			2,211			6
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	391			400			(2)		792			763			4		Franchise contributions for advertising and other services	402			401			—		1,194			1,164			3
Total revenues	Total revenues	1,687			1,636			3		3,332			3,183			5		Total revenues	1,708			1,640			4		5,040			4,823			5

Company restaurant expenses	Company restaurant expenses	415			415			—		818			817			—		Company restaurant expenses	421			402			(5)		1,239			1,219			(2)
G&A expenses	G&A expenses	291			254			(15)		573			507			(13)		G&A expenses	267			261			(2)		840			768			(9)
Franchise and property expenses	Franchise and property expenses	32			29			(12)		68			61			(12)		Franchise and property expenses	27			28			8		95			89			(5)
Franchise advertising and other services expense	Franchise advertising and other services expense	388			396			2		783			757			(3)		Franchise advertising and other services expense	400			396			(1)		1,183			1,153			(3)
Refranchising (gain) loss	Refranchising (gain) loss	(17)			(8)			NM		(21)			(12)			NM		Refranchising (gain) loss	(19)			(3)			NM		(40)			(15)			NM
Other (income) expense	Other (income) expense	5			(4)			NM		15			(10)			NM		Other (income) expense	(1)			10			NM		14			—			NM
Total costs and expenses, net	Total costs and expenses, net	1,114			1,082			(3)		2,236			2,120			(5)		Total costs and expenses, net	1,095			1,094			—		3,331			3,214			(4)
Operating Profit	Operating Profit	573			554			4		1,096			1,063			3		Operating Profit	613			546			12		1,709			1,609			6

Investment (income) expense, net	Investment (income) expense, net	(29)			15			NM		(5)			8			NM		Investment (income) expense, net	(16)			(27)			NM		(21)			(19)			NM
Other pension (income) expense	Other pension (income) expense	(1)			1			NM		(3)			1			NM		Other pension (income) expense	(2)			2			NM		(5)			3			NM
Interest expense, net	Interest expense, net	125			148			15		255			266			4		Interest expense, net	126			124			(1)		381			390			2
Income before income taxes	Income before income taxes	478			390			22		849			788			8		Income before income taxes	505			447			13		1,354			1,235			10
Income tax provision (benefit)	Income tax provision (benefit)	60			166			64		131			165			21		Income tax provision (benefit)	89			116			22		220			281			21
Net Income	Net Income	$	418		$	224		86		$	718		$	623		15		Net Income	$	416		$	331		26		$	1,134		$	954		19

Diluted EPS(a)	Diluted EPS(a)	$	1.46		$	0.77		89		$	2.51		$	2.13		18		Diluted EPS(a)	$	1.46		$	1.14		27		$	3.97		$	3.28		21
Effective tax rate	Effective tax rate	12.6		%	42.6		%	30	ppts.	15.4		%	21.0		%	5.6	ppts.	Effective tax rate	17.7		%	25.8		%	8.1	ppts.	16.3		%	22.7		%	6.4	ppts.

(a)See Note 2 for the number of shares used in this calculation.

Performance Metrics


Unit Count	Unit Count	6/30/2023	6/30/2022	% Increase (Decrease)	Unit Count	9/30/2023	9/30/2022	% Increase (Decrease)
Franchise	Franchise	55,416	52,363	6	Franchise	56,269	53,014	6
Company-owned	Company-owned	1,009	987	2	Company-owned	1,005	980	3
Total	Total	56,425	53,350	6	Total	57,274	53,994	6


		Quarter ended		Year to date			Quarter ended		Year to date
		2023	2022	2023	2022		2023	2022	2023	2022
Same-store Sales Growth (Decline) %	Same-store Sales Growth (Decline) %	9	1	8	2	Same-store Sales Growth (Decline) %	6	5	7	3
System Sales Growth (Decline) %, reported	System Sales Growth (Decline) %, reported	11	(1)	8	2	System Sales Growth (Decline) %, reported	9	1	9	2
System Sales Growth (Decline) %, excluding FX	System Sales Growth (Decline) %, excluding FX	13	3	12	5	System Sales Growth (Decline) %, excluding FX	10	7	11	6

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Our system sales breakdown by Company and franchise sales was as follows:


		Quarter ended				Year to date					Quarter ended				Year to date
		2023		2022		2023		2022			2023		2022		2023		2022

Consolidated	Consolidated									Consolidated
Company sales(a)	Company sales(a)	$	511	$	499	$	985	$	969	Company sales(a)	$	510	$	479	$	1,495	$	1,448
Franchise sales	Franchise sales	14,916		13,457		29,457		27,133		Franchise sales	15,320		14,064		44,777		41,197
System sales	System sales	15,427		13,956		30,442		28,102		System sales	15,830		14,543		46,272		42,645
Negative Foreign Currency Impact on System sales(b)		388		N/A		1,029		N/A
Negative (Positive) Foreign Currency Impact(b)										Negative (Positive) Foreign Currency Impact(b)	148		N/A		1,177		N/A
System sales, excluding FX	System sales, excluding FX	$	15,815	$	13,956	$	31,471	$	28,102	System sales, excluding FX	$	15,978	$	14,543	$	47,449	$	42,645

KFC Division	KFC Division									KFC Division
Company sales(a)	Company sales(a)	$	115	$	115	$	225	$	241	Company sales(a)	$	117	$	112	$	342	$	353
Franchise sales	Franchise sales	8,183		7,137		16,130		14,744		Franchise sales	8,503		7,712		24,633		22,456
System sales	System sales	8,298		7,252		16,355		14,985		System sales	8,620		7,824		24,975		22,809
Negative Foreign Currency Impact on System sales(b)		330		N/A		834		N/A
Negative (Positive) Foreign Currency Impact(b)										Negative (Positive) Foreign Currency Impact(b)	133		N/A		967		N/A
System sales, excluding FX	System sales, excluding FX	$	8,628	$	7,252	$	17,189	$	14,985	System sales, excluding FX	$	8,753	$	7,824	$	25,942	$	22,809

Taco Bell Division	Taco Bell Division									Taco Bell Division
Company sales(a)	Company sales(a)	$	253	$	243	$	482	$	457	Company sales(a)	$	256	$	234	$	738	$	691
Franchise sales	Franchise sales	3,507		3,266		6,742		6,160		Franchise sales	3,548		3,183		10,290		9,343
System sales	System sales	3,760		3,509		7,224		6,617		System sales	3,804		3,417		11,028		10,034
Negative Foreign Currency Impact on System sales(b)		—		N/A		10		N/A
Negative (Positive) Foreign Currency Impact(b)										Negative (Positive) Foreign Currency Impact(b)	(7)		N/A		3		N/A
System sales, excluding FX	System sales, excluding FX	$	3,760	$	3,509	$	7,234	$	6,617	System sales, excluding FX	$	3,797	$	3,417	$	11,031	$	10,034

Pizza Hut Division	Pizza Hut Division									Pizza Hut Division
Company sales(a)	Company sales(a)	$	4	$	5	$	9	$	10	Company sales(a)	$	2	$	4	$	11	$	14
Franchise sales	Franchise sales	3,197		3,034		6,528		6,189		Franchise sales	3,241		3,142		9,769		9,331
System sales	System sales	3,201		3,039		6,537		6,199		System sales	3,243		3,146		9,780		9,345
Negative Foreign Currency Impact on System sales(b)		58		N/A		185		N/A
Negative (Positive) Foreign Currency Impact(b)										Negative (Positive) Foreign Currency Impact(b)	22		N/A		207		N/A
System sales, excluding FX	System sales, excluding FX	$	3,259	$	3,039	$	6,722	$	6,199	System sales, excluding FX	$	3,265	$	3,146	$	9,987	$	9,345

Habit Burger Grill Division	Habit Burger Grill Division									Habit Burger Grill Division
Company sales(a)	Company sales(a)	$	139	$	136	$	269	$	261	Company sales(a)	$	135	$	129	$	404	$	390
Franchise sales	Franchise sales	29		20		57		40		Franchise sales	28		27		85		67
System sales	System sales	168		156		326		301		System sales	163		156		489		457
Foreign Currency Impact on System sales(b)		—		N/A		—		N/A
Negative (Positive) Foreign Currency Impact(b)										Negative (Positive) Foreign Currency Impact(b)	—		N/A		—		N/A
System sales, excluding FX	System sales, excluding FX	$	168	$	156	$	326	$	301	System sales, excluding FX	$	163	$	156	$	489	$	457

(a)Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income.

(b) The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales.


Non-GAAP Items	Non-GAAP Items									Non-GAAP Items

Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.	Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.									Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.

		Quarter ended				Year to date					Quarter ended				Year to date
		2023		2022		2023		2022			2023		2022		2023		2022
Core Operating Profit Growth (Decline) %		12		(1)		11		(3)
Core Operating Profit Growth %										Core Operating Profit Growth %	16		8		13		Even
Diluted EPS Growth (Decline) %, excluding Special Items	Diluted EPS Growth (Decline) %, excluding Special Items	33		(9)		17		(5)		Diluted EPS Growth (Decline) %, excluding Special Items	32		(11)		22		(7)
Effective Tax Rate excluding Special Items	Effective Tax Rate excluding Special Items	18.2	%	24.2	%	18.7	%	22.3	%	Effective Tax Rate excluding Special Items	18.6	%	26.6	%	18.7	%	23.8	%

2627


		Quarter ended						Year to date							Quarter ended						Year to date
		2023			2022			2023			2022				2023			2022			2023			2022
Company restaurant profit	Company restaurant profit	$	96		$	84		$	167		$	152		Company restaurant profit	$	89		$	77		$	256		$	229
Company restaurant margin %	Company restaurant margin %	18.9		%	16.8		%	17.0		%	15.7		%	Company restaurant margin %	17.3		%	16.2		%	17.1		%	15.8		%


Reconciliation of GAAP Operating Profit to Core Operating Profit	Reconciliation of GAAP Operating Profit to Core Operating Profit	Quarter ended				Year to date				Reconciliation of GAAP Operating Profit to Core Operating Profit	Quarter ended				Year to date
		2023		2022		2023		2022			2023		2022		2023		2022
Consolidated	Consolidated									Consolidated
GAAP Operating Profit	GAAP Operating Profit	$	573	$	554	$	1,096	$	1,063	GAAP Operating Profit	$	613	$	546	$	1,709	$	1,609
Detail of Special Items:	Detail of Special Items:									Detail of Special Items:
(Gain) loss associated with market-wide refranchisings(a)	(Gain) loss associated with market-wide refranchisings(a)	(2)		1		(5)		(2)		(Gain) loss associated with market-wide refranchisings(a)	(2)		—		(7)		(2)
Operating (profit) loss impact from decision to exit Russia(b)	Operating (profit) loss impact from decision to exit Russia(b)	9		(14)		12		(21)		Operating (profit) loss impact from decision to exit Russia(b)	(2)		(16)		10		(37)
Charges associated with Resource Optimization(c)	Charges associated with Resource Optimization(c)	8		—		10		1		Charges associated with Resource Optimization(c)	3		2		13		3
Other Special Items Expense	Other Special Items Expense	—		—		1		—		Other Special Items Expense	2		—		3		—
Special Items (Income) Expense - Operating Profit	Special Items (Income) Expense - Operating Profit	15		(13)		18		(22)		Special Items (Income) Expense - Operating Profit	1		(14)		19		(36)
Negative Foreign Currency Impact on Divisional Operating Profit(d)		17		N/A		44		N/A
Negative (Positive) Foreign Currency Impact on Operating Profit										Negative (Positive) Foreign Currency Impact on Operating Profit	5		N/A		49		N/A
Core Operating Profit	Core Operating Profit	$	605	$	541	$	1,158	$	1,041	Core Operating Profit	$	619	$	532	$	1,777	$	1,573

Special Items as shown above were recorded to the financial statement line items identified below.	Special Items as shown above were recorded to the financial statement line items identified below.									Special Items as shown above were recorded to the financial statement line items identified below.

Condensed Consolidated Summary of Results Line Item
Condensed Consolidated Statements of Income Line Item										Condensed Consolidated Statements of Income Line Item
General and administrative expenses	General and administrative expenses	$	11	$	2	$	15	$	3	General and administrative expenses	$	4	$	2	$	19	$	5
Franchise and property expenses	Franchise and property expenses	1		4		2		4		Franchise and property expenses	(1)		1		1		5
Refranchising (gain) loss	Refranchising (gain) loss	(2)		1		(5)		(2)		Refranchising (gain) loss	(2)		—		(7)		(2)
Other (income) expense	Other (income) expense	5		(20)		6		(27)		Other (income) expense	—		(17)		6		(44)
Special Items (Income) Expense - Operating Profit	Special Items (Income) Expense - Operating Profit	$	15	$	(13)	$	18	$	(22)	Special Items (Income) Expense - Operating Profit	$	1	$	(14)	$	19	$	(36)

KFC Division	KFC Division									KFC Division
GAAP Operating Profit	GAAP Operating Profit	$	326	$	293	$	631	$	584	GAAP Operating Profit	$	344	$	304	$	975	$	888
Negative Foreign Currency Impact on Divisional Operating Profit(d)		15		N/A		36		N/A
Negative (Positive) Foreign Currency Impact										Negative (Positive) Foreign Currency Impact	4		N/A		40		N/A
Core Operating Profit	Core Operating Profit	$	341	$	293	$	667	$	584	Core Operating Profit	$	348	$	304	$	1,015	$	888

Taco Bell Division	Taco Bell Division									Taco Bell Division
GAAP Operating Profit	GAAP Operating Profit	$	228	$	215	$	432	$	400	GAAP Operating Profit	$	226	$	204	$	658	$	604
Negative Foreign Currency Impact on Divisional Operating Profit(d)		—		N/A		1		N/A
Negative (Positive) Foreign Currency Impact										Negative (Positive) Foreign Currency Impact	(1)		N/A		—		N/A
Core Operating Profit	Core Operating Profit	$	228	$	215	$	433	$	400	Core Operating Profit	$	225	$	204	$	658	$	604

Pizza Hut Division	Pizza Hut Division									Pizza Hut Division
GAAP Operating Profit	GAAP Operating Profit	$	91	$	93	$	195	$	195	GAAP Operating Profit	$	97	$	92	$	292	$	287
Negative Foreign Currency Impact on Divisional Operating Profit(d)		2		N/A		7		N/A
Negative (Positive) Foreign Currency Impact										Negative (Positive) Foreign Currency Impact	2		N/A		9		N/A
Core Operating Profit	Core Operating Profit	$	93	$	93	$	202	$	195	Core Operating Profit	$	99	$	92	$	301	$	287

Habit Burger Grill Division	Habit Burger Grill Division									Habit Burger Grill Division
GAAP Operating Loss	GAAP Operating Loss	$	3	$	(2)	$	(2)	$	(10)	GAAP Operating Loss	$	(2)	$	(4)	$	(4)	$	(14)
Foreign Currency Impact on Divisional Operating Profit(d)		—		N/A		—		N/A
Negative (Positive) Foreign Currency Impact										Negative (Positive) Foreign Currency Impact	—		N/A		—		N/A
Core Operating Profit (Loss)	Core Operating Profit (Loss)	$	3	$	(2)	$	(2)	$	(10)	Core Operating Profit (Loss)	$	(2)	$	(4)	$	(4)	$	(14)

Reconciliation of GAAP Net Income to Net Income excluding Special Items	Reconciliation of GAAP Net Income to Net Income excluding Special Items									Reconciliation of GAAP Net Income to Net Income excluding Special Items
GAAP Net Income	GAAP Net Income	$	418	$	224	$	718	$	623	GAAP Net Income	$	416	$	331	$	1,134	$	954
Special Items (Income) Expense - Operating Profit	Special Items (Income) Expense - Operating Profit	15		(13)		18		(22)		Special Items (Income) Expense - Operating Profit	1		(14)		19		(36)
Special Items (Income) Expense - Interest Expense, net~~(e)~~(d)	Special Items (Income) Expense - Interest Expense, net~~(e)~~(d)	—		28		—		28		Special Items (Income) Expense - Interest Expense, net~~(e)~~(d)	—		—		—		28
Special Items Tax (Benefit) Expense(f)		(30)		68		(32)		(12)
Special Items Tax (Benefit)(e)										Special Items Tax (Benefit)(e)	(4)		—		(36)		(12)
Net Income excluding Special Items	Net Income excluding Special Items	$	403	$	307	$	704	$	617	Net Income excluding Special Items	$	413	$	317	$	1,117	$	934

2728


Reconciliation of Diluted EPS to Diluted EPS excluding Special Items	Reconciliation of Diluted EPS to Diluted EPS excluding Special Items													Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPS	Diluted EPS	$	1.46		$	0.77		$	2.51		$	2.13		Diluted EPS	$	1.46		$	1.14		$	3.97		$	3.28
Less Special Items Diluted EPS	Less Special Items Diluted EPS	0.05			(0.29)			0.05			0.02			Less Special Items Diluted EPS	0.02			0.05			0.06			0.07
Diluted EPS excluding Special Items	Diluted EPS excluding Special Items	$	1.41		$	1.06		$	2.46		$	2.11		Diluted EPS excluding Special Items	$	1.44		$	1.09		$	3.91		$	3.21

Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items	Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items													Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate	GAAP Effective Tax Rate	12.6		%	42.6		%	15.4		%	21.0		%	GAAP Effective Tax Rate	17.7		%	25.8		%	16.3		%	22.7		%
Impact on Tax Rate as a result of Special Items	Impact on Tax Rate as a result of Special Items	(5.6)		%	18.4		%	(3.3)		%	(1.3)		%	Impact on Tax Rate as a result of Special Items	(0.9)		%	(0.8)		%	(2.4)		%	(1.1)		%
Effective Tax Rate excluding Special Items	Effective Tax Rate excluding Special Items	18.2		%	24.2		%	18.7		%	22.3		%	Effective Tax Rate excluding Special Items	18.6		%	26.6		%	18.7		%	23.8		%

(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings. During the ~~quarters~~quarter ended ~~June~~September 30, 2023, ~~and 2022,~~ we recorded net refranchising gains of $2 million, ~~and net refranchising losses of $1 million, respectively,~~ that have been reflected as a Special Item. During the years to date ended ~~June~~September 30, 2023 and 2022, we recorded net refranchising gains of $5$7 million and $2 million, respectively, that have been reflected as a Special ~~Item.~~Items.

Additionally, we recorded net refranchising gains of ~~$15~~$17 million and $9$3 million during the quarters ended ~~June~~September 30, 2023 and 2022, respectively, that have not been reflected as Special Items. During the years to date ended ~~June~~September 30, 2023 and 2022, we recorded net refranchising gains of ~~$16~~$33 million and ~~$10~~$13 million, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings ~~and~~ that we believe are indicative of our expected ongoing refranchising activity.

(b)In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts. During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local ~~operator who has initiated~~operator. In the ~~process~~second quarter of ~~re-branding locations to a non-YUM concept. In April~~ 2023, we completed our exit from the Russia market by selling the KFC business in Russia.

Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of ~~sale~~transfer or ~~transfer,~~sale, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we ~~have~~ reclassed such net operating profits or losses ~~subsequent to such date~~ from the Division segment results in which they were earned to Unallocated Other income (expense). Additionally, we ~~have~~ incurred certain expenses related to the dispositions of the businesses and other one-time costs related to our exit from Russia which we ~~have~~ recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble and income of $1 million and a $4charge of $3 million ~~loss~~ recorded during the quarter and year to date ended ~~June~~September 30, 2023, respectively, as a result of the completion of the sale of the KFC Russia business. The resulting net Operating Profit of $2 million and net Operating Loss of ~~$9 million and $12~~$10 million for the quarter and year to date ended ~~June~~September 30, 2023, respectively, and net Operating Profit of ~~$14~~$16 million and ~~$21~~$37 million for the quarter and year to date ended ~~June~~September 30, 2022, respectively, have been reflected as Special Items.

(c)We recorded charges of $8$3 million and ~~$10~~$13 million during the quarter and year to date ended ~~June~~September 30, 2023, respectively, and $1$2 million and $3 million during the quarter and year to date ended ~~June~~September 30, 2022, to General and administrative expenses related to a resource optimization program initiated in the third quarter of 2020. This program is part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth. ~~These critical areas include accelerating our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics.~~ Due to ~~the~~their scope and size, ~~of the resource optimization program,~~ these charges have been reflected as Special Items.

(d)The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented. When determining applicable Core Operating Profit growth percentages, the Core Operating Profit for the current year should be compared to the prior year GAAP Operating Profit adjusted only for any prior year Special Items (Income) Expense.

~~(e)~~During the ~~quarter~~year to date ended ~~June~~September 30, 2022, the Company redeemed $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due in 2025 (the "2025 Notes"). The redemption amount was equal to 103.875% of the $600 million aggregate principal amount redeemed, reflecting a $23 million "call premium". We recognized the call premium and the write-off of $5 million of unamortized debt issuance costs associated with the 2025 Notes within Interest expense, net as a Special Item due to their size and the fact that the amounts are not indicative of our ongoing interest expense.

~~(f)~~

(e)The below table includes the detail of Special Items Tax (Benefit) Expense:

Quarter ended Year to date
6/30/23 6/30/22 6/30/23 6/30/22
Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense $ (2) $ (3) $ (2) $ (1)
Tax (Benefit) Expense - Income tax impacts from decision to exit Russia (6) 71 (8) 71
Tax (Benefit) - U.S. foreign tax credit regulations issued in January 2022 — — — (82)
Tax (Benefit) - Other Income tax impacts recorded as Special (22) — (22) —
Special Items Tax (Benefit) Expense $ (30) $ 68 $ (32) $ (12)


	Quarter ended				Year to date
	9/30/23		9/30/22		9/30/23		9/30/22
Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense	$	—	$	2	$	(2)	$	1
Tax (Benefit) Expense - Income tax impacts from decision to exit Russia	(4)		(2)		(12)		69
Tax (Benefit) - U.S. foreign tax credit regulations issued in January 2022	—		—		—		(82)
Tax (Benefit) - Other Income tax impacts recorded as Special	—		—		(22)		—
Special Items Tax (Benefit) Expense	$	(4)	$	—	$	(36)	$	(12)

Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.

Special Items Tax (Benefit) Expense includes ~~$71~~$69 million of net tax expense recorded in the ~~quarter~~year to date ended ~~June~~September 30, 2022, resulting from the Company’s decision to exit KFC Russia. We remeasured and reassessed the need for a valuation allowance on deferred tax assets in Switzerland due to the ~~then~~ expected reduction in the tax basis of intellectual property rights associated with the loss of the Russian royalty income. In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference ~~was going to~~would reverse by way of sale.

Special Items Tax (Benefit) Expense includes a tax benefit discretely recorded in the ~~quarter~~year to date ended ~~March 31,~~September 30, 2022 of $82 million. In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company's 2022 tax year. These regulations made foreign taxes paid to certain countries no longer creditable in the U.S., which was expected to result in additional foreign tax credit carryforward utilization prospectively. As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards. This valuation allowance reversal resulted in a one-time tax benefit of $82 million in the quarter ended March 31, 2022 that was reflected as a Special Item. The U.S Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes. As such the valuation allowance on foreign tax credit carryforwards that was released in the quarter ended March 31, 2022, was re-established in the quarter ended December 31, 2022.

Other Income Tax impacts recorded as Special in the ~~quarter and~~ year to date ended ~~June~~September 30, 2023 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction. Such reserve was established in prior years related to deferred tax assets originally recorded as a Special Item as part of an intercompany restructuring of intellectual property. Other Income Tax impacts recorded as Special in the ~~quarter and~~ year to date ended ~~June~~September 30, 2023 also include the release of valuation allowances associated with a jurisdiction in which a market-wide refranchising event occurred.

Reconciliation of GAAP Operating Profit to Company Restaurant Profit
Quarter ended 6/30/2023
KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated
GAAP Operating Profit (Loss) $ 326 $ 228 $ 91 $ 3 $ (75) $ 573
Less:
Franchise and property revenues 416 218 149 2 — 785
Franchise contributions for advertising and other services 151 150 89 1 — 391
Add:
General and administrative expenses 90 49 53 13 86 291
Franchise and property expenses 16 9 6 — 1 32
Franchise advertising and other services expense 150 148 89 1 — 388
Refranchising (gain) loss — — — — (17) (17)
Other (income) expense 1 — (1) — 5 5
Company restaurant profit $ 16 $ 66 $ — $ 14 $ — $ 96
Company sales $ 115 $ 253 $ 4 $ 139 $ — $ 511
Company restaurant margin % 14.3 % 25.6 % 3.2 % 11.1 % N/A 18.9 %

Quarter ended 6/30/2022
KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated
GAAP Operating Profit (Loss) $ 293 $ 215 $ 93 $ (2) $ (45) $ 554
Less:
Franchise and property revenues 394 199 142 2 — 737
Franchise contributions for advertising and other services 168 144 88 — — 400
Add:
General and administrative expenses 89 39 50 11 65 254
Franchise and property expenses 14 8 2 1 4 29
Franchise advertising and other services expense 163 144 88 1 — 396
Refranchising (gain) loss — — — — (8) (8)
Other (income) expense 16 (1) (3) — (16) (4)
Company restaurant profit $ 13 $ 62 $ — $ 9 $ — $ 84
Company sales $ 115 $ 243 $ 5 $ 136 $ — $ 499
Company restaurant margin % 11.6 % 25.7 % (8.0) % 6.0 % N/A 16.8 %


Reconciliation of GAAP Operating Profit to Company Restaurant Profit																			Reconciliation of GAAP Operating Profit to Company Restaurant Profit
		Year to date 6/30/2023																		Quarter ended 9/30/2023
		KFC Division			Taco Bell Division			Pizza Hut Division			Habit Burger Grill Division			Corporate and Unallocated		Consolidated				KFC Division			Taco Bell Division			Pizza Hut Division			Habit Burger Grill Division			Corporate and Unallocated		Consolidated
GAAP Operating Profit (Loss)	GAAP Operating Profit (Loss)	$	631		$	432		$	195		$	(2)		$	(160)	$	1,096		GAAP Operating Profit (Loss)	$	344		$	226		$	97		$	(2)		$	(52)	$	613
Less:	Less:																		Less:
Franchise and property revenues	Franchise and property revenues	828			419			304			4			—		1,555			Franchise and property revenues	426			218			150			2			—		796
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	316			292			183			1			—		792			Franchise contributions for advertising and other services	157			155			90			—			—		402
Add:	Add:																		Add:
General and administrative expenses	General and administrative expenses	179			94			104			26			170		573			General and administrative expenses	86			47			51			15			68		267
Franchise and property expenses	Franchise and property expenses	42			14			9			1			2		68			Franchise and property expenses	15			7			5			1			(1)		27
Franchise advertising and other services expense	Franchise advertising and other services expense	314			286			182			1			—		783			Franchise advertising and other services expense	156			153			91			—			—		400
Refranchising (gain) loss	Refranchising (gain) loss	—			—			—			—			(21)		(21)			Refranchising (gain) loss	—			—			—			—			(19)		(19)
Other (income) expense	Other (income) expense	8			1			(3)			—			9		15			Other (income) expense	(1)			1			(4)			(1)			4		(1)
Company restaurant profit	Company restaurant profit	$	30		$	116		$	—		$	21		$	—	$	167		Company restaurant profit	$	17		$	61		$	—		$	11		$	—	$	89
Company sales	Company sales	$	225		$	482		$	9		$	269		$	—	$	985		Company sales	$	117		$	256		$	2		$	135		$	—	$	510
Company restaurant margin %	Company restaurant margin %	13.2		%	24.0		%	3.6		%	8.2		%	N/A		17.0		%	Company restaurant margin %	14.3		%	23.8		%	(9.0)		%	7.8		%	N/A		17.3		%


		Year to date 6/30/2022																		Quarter ended 9/30/2022
		KFC Division			Taco Bell Division			Pizza Hut Division			Habit Burger Grill Division			Corporate and Unallocated		Consolidated				KFC Division			Taco Bell Division			Pizza Hut Division			Habit Burger Grill Division			Corporate and Unallocated		Consolidated
GAAP Operating Profit (Loss)	GAAP Operating Profit (Loss)	$	584		$	400		$	195		$	(10)		$	(106)	$	1,063		GAAP Operating Profit (Loss)	$	304		$	204		$	92		$	(4)		$	(50)	$	546
Less:	Less:																		Less:
Franchise and property revenues	Franchise and property revenues	777			378			293			3			—		1,451			Franchise and property revenues	418			196			145			1			—		760
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	319			268			176			—			—		763			Franchise contributions for advertising and other services	174			138			88			1			—		401
Add:	Add:																		Add:
General and administrative expenses	General and administrative expenses	173			75			100			23			136		507			General and administrative expenses	96			41			45			12			67		261
Franchise and property expenses	Franchise and property expenses	38			14			4			1			4		61			Franchise and property expenses	15			8			5			—			—		28
Franchise advertising and other services expense	Franchise advertising and other services expense	314			267			175			1			—		757			Franchise advertising and other services expense	166			139			91			—			—		396
Refranchising (gain) loss	Refranchising (gain) loss	—			—			—			—			(12)		(12)			Refranchising (gain) loss	—			—			—			—			(3)		(3)
Other (income) expense	Other (income) expense	18			(1)			(5)			—			(22)		(10)			Other (income) expense	26			(1)			(1)			—			(14)		10
Company restaurant profit	Company restaurant profit	$	31		$	109		$	—		$	12		$	—	$	152		Company restaurant profit	$	15		$	57		$	(1)		$	6		$	—	$	77
Company sales	Company sales	$	241		$	457		$	10		$	261		$	—	$	969		Company sales	$	112		$	234		$	4		$	129		$	—	$	479
Company restaurant margin %	Company restaurant margin %	12.9		%	23.9		%	(4.4)		%	4.5		%	N/A		15.7		%	Company restaurant margin %	13.6		%	23.9		%	(5.4)		%	5.2		%	N/A		16.2		%


	Year to date 9/30/2023
	KFC Division			Taco Bell Division			Pizza Hut Division			Habit Burger Grill Division			Corporate and Unallocated		Consolidated
GAAP Operating Profit (Loss)	$	975		$	658		$	292		$	(4)		$	(212)	$	1,709
Less:
Franchise and property revenues	1,254			637			454			6			—		2,351
Franchise contributions for advertising and other services	473			447			273			1			—		1,194
Add:
General and administrative expenses	265			141			155			41			238		840
Franchise and property expenses	57			21			14			2			1		95
Franchise advertising and other services expense	470			439			273			1			—		1,183
Refranchising (gain) loss	—			—			—			—			(40)		(40)
Other (income) expense	7			2			(7)			(1)			13		14
Company restaurant profit	$	47		$	177		$	—		$	32		$	—	$	256
Company sales	$	342		$	738		$	11		$	404		$	—	$	1,495
Company restaurant margin %	13.6		%	23.9		%	1.2		%	8.0		%	N/A		17.1		%


	Year to date 9/30/2022
	KFC Division			Taco Bell Division			Pizza Hut Division			Habit Burger Grill Division			Corporate and Unallocated		Consolidated
GAAP Operating Profit (Loss)	$	888		$	604		$	287		$	(14)		$	(156)	$	1,609
Less:
Franchise and property revenues	1,195			574			438			4			—		2,211
Franchise contributions for advertising and other services	493			406			264			1			—		1,164
Add:
General and administrative expenses	269			116			145			35			203		768
Franchise and property expenses	53			22			9			1			4		89
Franchise advertising and other services expense	480			406			266			1			—		1,153
Refranchising (gain) loss	—			—			—			—			(15)		(15)
Other (income) expense	44			(2)			(6)			—			(36)		—
Company restaurant profit	$	46		$	166		$	(1)		$	18		$	—	$	229
Company sales	$	353		$	691		$	14		$	390		$	—	$	1,448
Company restaurant margin %	13.1		%	23.9		%	(4.7)		%	4.8		%	N/A		15.8		%

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

The following items impacted reported results in 2023 and/or 2022 and/or are reasonably likely to impact future results. See also the Detail of Special Items in this MD&A for other items similarly impacting results.

Russia Invasion of Ukraine

3132

During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator. ~~In April~~During the second quarter of 2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian ~~company-owned~~company owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the ~~Rostik’s~~Rostik's brand.

As of the beginning of the second quarter of 2022, we elected to remove all Russia units from our unit count and their associated sales from our total system sales. We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut units counts, respectively. This negatively impacted our system sales growth excluding foreign currency for YUM and KFC Division by 1 ~~and 2~~ percentage ~~points, respectively,~~point for the year to date ended ~~June~~September 30, 2023. Russia units were removed from our same-store sales calculations as of the beginning of the second quarter of 2022.

Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of transfer or sale, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we ~~have~~ reclassed such net operating profits or losses subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense) and reflected such net profits as a Special item. Additionally, we ~~have~~ incurred certain expenses related to the dispositions of the businesses and other one-time costs related to our exit from Russia which we ~~have~~ recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble and income of $1 million and a $4charge of $3 million ~~loss~~ recorded during the quarter and year to date ended ~~June~~September 30, 2023, respectively, as a result of the sale of the KFC Russia business. The resulting net Operating Profit of $2 million and net Operating Loss of ~~$9 million and $12~~$10 million for the quarter and year to date ended ~~June~~September 30, 2023, respectively, and net Operating Profit of ~~$14~~$16 million and ~~$21~~$37 million for the quarter and year to date ended ~~June~~September 30, 2022, respectively, have been reflected as a Special ~~Item.~~Items.

Prior to the invasion, our Russian business ~~has~~ constituted approximately 3% of our total operating profit and 2% of our total system sales. During ~~both~~ the ~~quarter and~~ year to date ended ~~June~~September 30, 2023, our Core Operating Profits in Russia declined versus the prior year, negatively impacting both YUM and KFC Division Core Operating Profit growth by 1 ~~and 2~~ percentage ~~points, respectively.~~point.

Impact of Foreign Currency Translation on Operating Profit

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by ~~$17~~$5 million and ~~$44~~$49 million for the quarter and year to date ended ~~June~~September 30, 2023, respectively. This included a negative impact to our KFC Division Operating Profit of ~~$15~~$4 million and ~~$36~~$40 million for the quarter and year to date ended ~~June~~September 30, 2023, respectively. ~~For the second half of 2023, we~~We currently expect changes in foreign currency to ~~have an insignificant~~negatively impact on Divisional Operating ~~Profit.~~Profit by approximately $45 to $55 million on a full-year basis.

Investment in Devyani

Changes in the fair value of our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, resulted in pre-tax gains of ~~$28~~$16 million and $5$21 million in the quarter and year to date ended ~~June~~September 30, 2023, respectively, and pre-tax investment ~~losses~~income of ~~$14~~$27 million and $7$20 million in the quarter and year to date ended ~~June~~September 30, 2022, respectively.

KFC Division

The KFC Division has ~~28,500~~29,051 units, ~~86%~~87% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of ~~June~~September 30, 2023.

3233


		Quarter ended										Year to date											Quarter ended										Year to date
								% B/(W)										% B/(W)											% B/(W)										% B/(W)
		2023			2022			Reported		Ex FX		2023			2022			Reported		Ex FX			2023			2022			Reported		Ex FX		2023			2022			Reported		Ex FX
System Sales	System Sales	$	8,298		$	7,252		14		19		$	16,355		$	14,985		9		15		System Sales	$	8,620		$	7,824		10		12		$	24,975		$	22,809		9		14
Same-Store Sales Growth (Decline) %	Same-Store Sales Growth (Decline) %	13			(1)			N/A		N/A		11			1			N/A		N/A		Same-Store Sales Growth (Decline) %	6			7			N/A		N/A		9			3			N/A		N/A

Company sales	Company sales	$	115		$	115		1		7		$	225		$	241		(7)		—		Company sales	$	117		$	112		4		6		$	342		$	353		(3)		2
Franchise and property revenues	Franchise and property revenues	416			394			5		9		828			777			7		11		Franchise and property revenues	426			418			2		3		1,254			1,195			5		8
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	151			168			(9)		(6)		316			319			(1)		3		Franchise contributions for advertising and other services	157			174			(10)		(11)		473			493			(4)		(2)
Total revenues	Total revenues	$	682		$	677		1		5		$	1,369		$	1,337		2		7		Total revenues	$	700		$	704		(1)		—		$	2,069		$	2,041		1		5

Company restaurant profit	Company restaurant profit	$	16		$	13		24		34		$	30		$	31		(5)		3		Company restaurant profit	$	17		$	15		10		13		$	47		$	46		—		6
Company restaurant margin %	Company restaurant margin %	14.3		%	11.6		%	2.7	ppts.	2.8	ppts.	13.2		%	12.9		%	0.3	ppts.	0.4	ppts.	Company restaurant margin %	14.3		%	13.6		%	0.7	ppts.	1.0	ppts.	13.6		%	13.1		%	0.5	ppts.	0.6	ppts.

G&A expenses	G&A expenses	$	90		$	89		(1)		(2)		$	179		$	173		(3)		(5)		G&A expenses	$	86		$	96		10		10		$	265		$	269		1		—
Franchise and property expenses	Franchise and property expenses	16			14			(10)		(15)		42			38			(11)		(17)		Franchise and property expenses	15			15			3		7		57			53			(7)		(10)
Franchise advertising and other services expense	Franchise advertising and other services expense	150			163			8		4		314			314			—		(4)		Franchise advertising and other services expense	156			166			6		7		470			480			2		—
Operating Profit	Operating Profit	$	326		$	293		11		16		$	631		$	584		8		14		Operating Profit	$	344		$	304		13		14		$	975		$	888		10		14


				% Increase (Decrease)										% Increase (Decrease)
Unit Count	Unit Count	6/30/2023	6/30/2022			Unit Count		9/30/2023			9/30/2022
Franchise	Franchise	28,282	26,300		8				Franchise		28,833		26,652		8
Company-owned	Company-owned	218	221	(1)			Company-owned			218		220		(1)
Total	Total	28,500	26,521	7			Total			29,051		26,872		8

Company sales and Company restaurant margin %

The quarterly increase in Company sales, excluding the impact of foreign currency translation, was driven by Company same-store sales growth of 8%5%.

The year to date increase in Company sales, excluding the impact of foreign currency translation, was driven by Company same-store sales growth of 7%6%, partially offset by the suspension of operations of our 70 company owned KFC restaurants in ~~Russia in the first quarter of 2022.~~Russia. As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.

The quarterly and year to date increases in Company restaurant margin percentage were driven by ~~driven by~~ Company same-store sales growth, partially offset by commodity inflation.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by franchise same-store sales growth of ~~13%~~6% and ~~11%~~10%, respectively, and unit growth, partially offset by the impact of the sale of our Russia business during the quarter ended June 30, 2023.

As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.

3334

G&A

The quarterly ~~increase~~decrease in G&A, excluding the impact of foreign currency translation, was driven ~~by higher expenses related to our annual incentive compensation programs, higher travel related costs, and higher headcount and salaries, partially offset~~ by the impact of the sale of our Russia business during the quarter ended June 30, 2023 and lower professional ~~fees.~~

~~The year to date increase in G&A, excluding the impact of foreign currency translation, was driven~~fees, partially offset by ~~higher headcount and salaries,~~ higher expenses related to our annual incentive compensation programs and higher ~~travel related costs, partially offset by~~headcount and salaries.

G&A was flat year to date, excluding the impact of foreign currency translation, as the impact of the sale of our Russia business during the quarter ended June 30, 2023 and lower professional ~~fees.~~fees were offset by higher expenses related to our annual incentive compensation programs, higher headcount and salaries, and higher travel related costs.

Operating Profit

The quarterly ~~and year to date increases~~increase in Operating Profit, excluding the impact of foreign currency translation, ~~were~~was driven by same-store sales growth and unit growth, partially offset by higher ~~G&A,~~restaurant operating costs.

The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by higher restaurant operating costs and the negative impact of 21 percentage ~~points~~point on ~~both quarterly and year to date~~ operating profit growth as a result of lower profits in Russia.

Taco Bell Division

The Taco Bell Division has ~~8,320~~8,385 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of ~~June~~September 30, 2023.


		Quarter ended										Year to date											Quarter ended										Year to date
								% B/(W)										% B/(W)											% B/(W)										% B/(W)
		2023			2022			Reported		Ex FX		2023			2022			Reported		Ex FX			2023			2022			Reported		Ex FX		2023			2022			Reported	Ex FX

System Sales	System Sales	$	3,760		$	3,509		7		7		$	7,224		$	6,617		9		9		System Sales	$	3,804		$	3,417		11		11		$	11,028		$	10,034		10	10
Same-Store Sales Growth %	Same-Store Sales Growth %	4			8			N/A		N/A		6			6			N/A		N/A		Same-Store Sales Growth %	8			6			N/A		N/A		7			6			N/A	N/A

Company sales	Company sales	$	253		$	243		4		4		$	482		$	457		5		5		Company sales	$	256		$	234		10		10		$	738		$	691		7	7
Franchise and property revenues	Franchise and property revenues	218			199			9		9		419			378			11		11		Franchise and property revenues	218			196			12		12		637			574			11	11
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	150			144			5		5		292			268			9		9		Franchise contributions for advertising and other services	155			138			12		12		447			406			10	10
Total revenues	Total revenues	$	621		$	586		6		6		$	1,193		$	1,103		8		8		Total revenues	$	629		$	568		11		11		$	1,822		$	1,671		9	9

Company restaurant profit	Company restaurant profit	$	66		$	62		4		4		$	116		$	109		6		6		Company restaurant profit	$	61		$	57		9		9		$	177		$	166		7	7
Company restaurant margin %	Company restaurant margin %	25.6		%	25.7		%	(0.1)	ppts.	(0.1)	ppts.	24.0		%	23.9		%	0.1	ppts.	0.1	ppts.	Company restaurant margin %	23.8		%	23.9		%	(0.1)	ppts.	(0.1)	ppts.	23.9		%	23.9		%	Even	Even

G&A expenses	G&A expenses	$	49		$	39		(25)		(25)		$	94		$	75		(25)		(25)		G&A expenses	$	47		$	41		(14)		(14)		$	141		$	116		(21)	(21)
Franchise and property expenses	Franchise and property expenses	9			8			(6)		(6)		14			14			3		4		Franchise and property expenses	7			8			1		1		21			22			2	3
Franchise advertising and other services expense	Franchise advertising and other services expense	148			144			(2)		(2)		286			267			(7)		(7)		Franchise advertising and other services expense	153			139			(11)		(11)		439			406			(8)	(8)
Operating Profit	Operating Profit	$	228		$	215		6		6		$	432		$	400		8		8		Operating Profit	$	226		$	204		11		11		$	658		$	604		9	9

3435


				% Increase (Decrease)										% Increase (Decrease)
Unit Count	Unit Count	6/30/2023	6/30/2022			Unit Count		9/30/2023			9/30/2022
Franchise	Franchise	7,847	7,435		6				Franchise		7,908		7,510		5
Company-owned	Company-owned	473	465	2			Company-owned			477		464		3
Total	Total	8,320	7,900	5			Total			8,385		7,974		5

Company sales and Company restaurant margin %

The quarterly and year to date increases in Company sales were driven by company same-store sales growth of 3%8% and 5%6% for the quarter and year to date, respectively, and unit growth partially offset by refranchising.

The quarterly decrease in Company restaurant margin percentage was driven by higher labor costs, ~~and~~ commodity inflation and an increase in other restaurant operating costs partially offset by same-store sales growth.

~~The year to date increase in~~ Company restaurant margin percentage for the year to date was ~~driven by~~flat with prior year, as same-store sales growth ~~partially~~was offset by higher labor costs, commodity inflation and ~~commodity inflation.~~an increase in other restaurant operating costs.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 4%8% and 6%7% for the quarter and year to date, respectively, and unit growth.

G&A

The quarterly and year to date ~~increases~~increase in G&A, excluding the impacts of foreign currency translation, were driven by higher digital and technology expenses, ~~and~~ higher headcount and ~~salaries.~~salaries and higher share-based compensation offset partially by lower expenses related to our annual incentive compensation programs.

Operating Profit

The quarterly and year to date increases in Operating Profit were driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher G&A.

Pizza Hut Division

The Pizza Hut Division has ~~19,242~~19,469 units, 66% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of ~~June~~September 30, 2023.

3536


		Quarter ended										Year to date											Quarter ended										Year to date
								% B/(W)										% B/(W)											% B/(W)										% B/(W)
		2023			2022			Reported		Ex FX		2023			2022			Reported		Ex FX			2023			2022			Reported		Ex FX		2023			2022			Reported		Ex FX

System Sales	System Sales	$	3,201		$	3,039		5		7		$	6,537		$	6,199		5		8		System Sales	$	3,243		$	3,146		3		4		$	9,780		$	9,345		5		7
Same-Store Sales Growth (Decline) %	Same-Store Sales Growth (Decline) %	4			(3)			N/A		N/A		5			(1)			N/A		N/A		Same-Store Sales Growth (Decline) %	1			1			N/A		N/A		4			Even			N/A		N/A

Company sales	Company sales	$	4		$	5		(9)		(9)		$	9		$	10		(3)		(3)		Company sales	$	2		$	4		(55)		(55)		$	11		$	14		(20)		(20)
Franchise and property revenues	Franchise and property revenues	149			142			5		7		304			293			4		7		Franchise and property revenues	150			145			3		4		454			438			4		6
Franchise contributions for advertising and other services	Franchise contributions for advertising and other services	89			88			1		1		183			176			4		4		Franchise contributions for advertising and other services	90			88			2		2		273			264			3		4
Total revenues	Total revenues	$	242		$	235		3		4		$	496		$	479		4		6		Total revenues	$	242		$	237		2		2		$	738		$	716		3		4

Company restaurant profit	Company restaurant profit	$	—		$	—		NM		NM		$	—		$	—		NM		NM		Company restaurant profit	$	—		$	(1)		24		24		$	—		$	(1)		NM		NM
Company restaurant margin %	Company restaurant margin %	3.2		%	(8.0)		%	11.2	ppts.	11.2	ppts.	3.6		%	(4.4)		%	8.0	ppts.	8.0	ppts.	Company restaurant margin %	(9.0)		%	(5.4)		%	(3.6)	ppts.	(3.6)	ppts.	1.2		%	(4.7)		%	5.9	ppts.	5.9	ppts.

G&A expenses	G&A expenses	$	53		$	50		(7)		(7)		$	104		$	100		(5)		(6)		G&A expenses	$	51		$	45		(11)		(10)		$	155		$	145		(7)		(7)
Franchise and property expenses	Franchise and property expenses	6			2			(167)		(173)		9			4			(108)		(102)		Franchise and property expenses	5			5			(4)		(4)		14			9			(56)		(53)
Franchise advertising and other services expense	Franchise advertising and other services expense	89			88			(2)		(2)		182			175			(4)		(5)		Franchise advertising and other services expense	91			91			—		1		273			266			(3)		(3)
Operating Profit	Operating Profit	$	91		$	93		(2)		1		$	195		$	195		Even		4		Operating Profit	$	97		$	92		5		7		$	292		$	287		2		5


				% Increase (Decrease)										% Increase (Decrease)
Unit Count	Unit Count	6/30/2023	6/30/2022			Unit Count		9/30/2023			9/30/2022
Franchise	Franchise	19,221	18,569		4				Franchise		19,461		18,786		4
Company-owned	Company-owned	21	22	(5)			Company-owned			8		21		(62)
Total	Total	19,242	18,591	4			Total			19,469		18,807		4

Franchise and property revenues

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and franchise same-store sales growth of ~~4% and unit growth.~~2%.

The year to date increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 5%4% and unit growth, partially offset by lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.

G&A

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher professional ~~fees.~~fees and higher headcount and salaries.

The year to date increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries, higher professional fees and higher travel related expenses.

3637

Operating Profit

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by ~~same-store sales~~unit growth and ~~unit~~same-store sales growth, partially offset by higher G~~&A and current year bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables~~.&A.

The year to date increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth and unit growth partially offset by higher G&A and lapping the ~~upfront~~prior year recognition of franchise fees related to unexercised development rights arising from a master franchise ~~agreement and current year bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables.~~agreement.

Habit Burger Grill Division

The Habit Burger Grill Division has ~~363~~369 units, the vast majority of which are in the U.S. The Company owned 85% of the Habit Burger Grill units in the U.S. as of ~~June~~September 30, 2023.


		Quarter ended					Year to date						Quarter ended					Year to date
						% B/(W)					% B/(W)						% B/(W)					% B/(W)
		2023		2022		Reported	2023		2022		Reported		2023		2022		Reported	2023		2022		Reported
System Sales	System Sales	$	168	$	156	9	$	326	$	301	8	System Sales	$	163	$	156	4	$	489	$	457	7
Same-Store Sales Growth %	Same-Store Sales Growth %	Even		(4)		N/A	Even		Even		N/A	Same-Store Sales Growth %	(5)		(1)		N/A	(2)		(1)		N/A
Total revenues	Total revenues	$	142	$	138	4	$	274	$	264	4	Total revenues	$	137	$	131	4	$	411	$	395	4
Operating Profit (Loss)	Operating Profit (Loss)	$	3	$	(2)	NM	$	(2)	$	(10)	81	Operating Profit (Loss)	$	(2)	$	(4)	43	$	(4)	$	(14)	70


Unit Count	Unit Count	6/30/2023	6/30/2022	% Increase (Decrease)	Unit Count	9/30/2023	9/30/2022	% Increase (Decrease)
Franchise	Franchise	66	59	12	Franchise	67	66	2
Company-owned	Company-owned	297	279	6	Company-owned	302	275	10
Total	Total	363	338	7	Total	369	341	8

Corporate & Unallocated


		Quarter ended								Year to date									Quarter ended								Year to date
(Expense) / Income	(Expense) / Income	2023			2022			% B/(W)		2023			2022			% B/(W)		(Expense) / Income	2023			2022			% B/(W)		2023			2022			% B/(W)
Corporate and unallocated G&A	Corporate and unallocated G&A	$	(86)		$	(65)		(34)		$	(170)		$	(136)		(25)		Corporate and unallocated G&A	$	(68)		$	(67)		(1)		$	(238)		$	(203)		(17)
Unallocated Franchise and property expenses (See Note 8)		(1)			(4)			NM		(2)			(4)			NM
Unallocated Franchise and property income (expenses) (See Note 8)																		Unallocated Franchise and property income (expenses) (See Note 8)	1			—			NM		(1)			(4)			NM
Unallocated Refranchising gain (loss)	Unallocated Refranchising gain (loss)	17			8			NM		21			12			NM		Unallocated Refranchising gain (loss)	19			3			NM		40			15			NM
Unallocated Other income (expense) (See Note 8)	Unallocated Other income (expense) (See Note 8)	(5)			16			NM		(9)			22			NM		Unallocated Other income (expense) (See Note 8)	(4)			14			NM		(13)			36			NM
Investment income (expense), net (See Note 8)	Investment income (expense), net (See Note 8)	29			(15)			NM		5			(8)			NM		Investment income (expense), net (See Note 8)	16			27			NM		21			19			NM
Other pension income (expense) (See Note 9)	Other pension income (expense) (See Note 9)	1			(1)			NM		3			(1)			NM		Other pension income (expense) (See Note 9)	2			(2)			NM		5			(3)			NM
Interest expense, net	Interest expense, net	(125)			(148)			15		(255)			(266)			4		Interest expense, net	(126)			(124)			(1)		(381)			(390)			2
Income tax benefit (provision) (See Note 6)	Income tax benefit (provision) (See Note 6)	(60)			(166)			64		(131)			(165)			21		Income tax benefit (provision) (See Note 6)	(89)			(116)			22		(220)			(281)			21
Effective tax rate (See Note 6)	Effective tax rate (See Note 6)	12.6		%	42.6		%	30.0	ppts.	15.4		%	21.0		%	5.6	ppts.	Effective tax rate (See Note 6)	17.7		%	25.8		%	8.1	ppts.	16.3		%	22.7		%	6.4	ppts.

Corporate and unallocated G&A

The quarterly increase in Corporate and Unallocated G&A expense was driven by higher ~~professional fees, higher~~ current year expenses related to our annual incentive compensation programs, ~~higher software costs and amortization and costs associated with~~partially offset by actions taken to mitigate the negative G&A impacts of the previously disclosed January 2023 ransomware attack.

The year to date increase in Corporate and Unallocated G&A expense was driven by ~~costs associated with the previously disclosed ransomware attack, higher professional fees,~~ higher current year expenses related to our annual incentive compensation programs and ~~higher software~~ costs ~~and amortization.~~associated with the previously disclosed January 2023 ransomware attack.

Interest expense, net

The quarterly ~~and~~increase in Interest expense, net was primarily driven by a higher weighted average interest rate, partially offset by higher interest income.

The year to date decrease in Interest expense, net was primarily driven by lapping of $28 ~~millon~~million of expense in the prior year relating to the call premium and unamortized debt issuance costs written-off associated with the redemption of the 2025 Notes (as discussed in our 2022 Form 10-K) and higher interest income. This ~~decrease~~ was partially offset by a higher weighted average interest ~~rate on our outstanding borrowings.~~rate.

Consolidated Cash Flows

Net cash provided by operating activities was ~~$678~~$1,155 million in 2023 versus ~~$522~~$975 million in 2022. The increase was primarily driven by an increase in Operating profit ~~before Special Items, timing of spending on advertising~~ and a decrease in incentive compensation payments, partially offset by higher interest payments.

Net cash ~~provided by~~used in investing activities was ~~$26~~$4 million in 2023 versus ~~net cash used in investing activities of $64~~$112 million in 2022. The change was primarily driven by proceeds from the current year sale of KFC Russia, partially offset by higher current year capital spending.

Net cash used in financing activities was ~~$698~~$921 million in 2023 versus ~~$586~~$928 million in 2022. The change was primarily driven by lower ~~net borrowings,~~current year share repurchases, partially offset by lower ~~current year share repurchases.~~net borrowings.

Liquidity and Capital Resources

We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores. Our annual operating cash flows have been in excess of $1.3 billion in each of the past four years and we expect that to continue to be the case in 2023. It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases. To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement ~~which had $30 million outstanding~~that was undrawn as of ~~June~~September 30, 2023. We believe that our ongoing cash from operations, cash on hand, which was approximately ~~$440~~$650 million at ~~June~~September 30, 2023, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

There have been no material changes to the disclosures made in Item 7 of the Company's 2022 Form 10-K regarding our material cash requirements. Due to the ongoing significance of our debt obligations, we are providing the update below.

Debt Instruments

As of ~~June~~September 30, 2023, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding ~~the Revolving Facility balances,~~ finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately ~~4.5%~~4.6%. We ended the quarter with a consolidated net leverage ratio of ~~4.7x~~4.4x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years.We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's) with a balance sheet consistent with highly-levered peer restaurant franchise companies.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of ~~June~~September 30, 2023.


		2023		2024		2025		2026		2027		2028		2029		2030		2031		2032		2037		2043		Total			2023		2024		2025		2026		2027		2028		2029		2030		2031		2032		2037		2043		Total
Securitization Notes	Securitization Notes	$	10					$	938	$	884	$	595	$	589			$	737							$	3,753	Securitization Notes							$	938	$	884	$	595	$	589			$	737							$	3,743
Credit Agreement	Credit Agreement	17		$	48	$	53	662		15		1,398														2,193		Credit Agreement	$	8	$	48	$	53	662		15		1,399														2,185
Revolving Facility								30																		30

Subsidiary Senior Unsecured Notes	Subsidiary Senior Unsecured Notes									750																750		Subsidiary Senior Unsecured Notes									750																750
YUM Senior Unsecured Notes	YUM Senior Unsecured Notes	325														$	800	1,050		$	2,100	$	325	$	275	4,875		YUM Senior Unsecured Notes	325														$	800	1,050		$	2,100	$	325	$	275	4,875

Total	Total	$	352	$	48	$	53	$	1,630	$	1,649	$	1,993	$	589	$	800	$	1,787	$	2,100	$	325	$	275	$	11,601	Total	$	333	$	48	$	53	$	1,600	$	1,649	$	1,994	$	589	$	800	$	1,787	$	2,100	$	325	$	275	$	11,553

See Note 10 for details on the Securitization Notes, the Credit Agreement, Revolving Facility, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.

Ransomware Attack

On January 18, 2023, the Company announced a ransomware attack that impacted certain Information Technology (“IT”) systems. Promptly upon the detection of the incident, the Company initiated response protocols and an investigation, engaged the services of industry-leading cybersecurity and forensics professionals and consulted Federal law enforcement. This incident resulted in the closure of fewer than 300 restaurants in one market for one day, and certain of the Company’s IT systems and data were affected. In addition, although data was taken from our network, with our forensic investigation complete we have concluded that the affected data was limited to certain personal information of former and current employees, and there continues to be no evidence that customer databases were accessed.

We have incurred, and may continue to incur, certain expenses related to this attack, including expenses to respond to, remediate and investigate this matter. In addition, several separate putative class actions have been filed in U.S. federal and state court by current and/or former employees alleging violations of privacy and other rights in connection with the ransomware incident. We do not believe the impact of the incident or the aforementioned matters will ultimately have a material adverse effect on our business, results of operations or financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes during the quarter ended ~~June~~September 30, 2023, to the disclosures made in Item 7A of the Company’s 2022 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.

Changes in Internal Control

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended ~~June~~September 30, 2023.

Forward-Looking Statements

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. Forward-looking statements are based on our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections will be achieved. Factors that could cause actual results and events to differ materially from our expectations and forward-looking statements include (i) the factors described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 of this report, (ii) any risks and uncertainties described in the Risk Factors included in Part II, Item 1A of this report, (iii) the factors described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2022, and (iv) the risks and uncertainties described in the Risk Factors included in Part I, Item 1A of our Form 10-K for the year ended December 31, 2022. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

3940

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Yum! Brands, Inc.:

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of Yum! Brands, Inc. and subsidiaries (YUM) as of ~~June~~September 30, 2023, the related condensed consolidated statements of income, comprehensive income, and shareholders’ deficit for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2023 and 2022, the related condensed consolidated statements of cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2023 and 2022, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of YUM as of December 31, 2022, and the related consolidated statements of income, comprehensive income, shareholders’ deficit, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of YUM’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to YUM in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Louisville, Kentucky

~~August~~November 7, 2023

4041

PART II – OTHER INFORMATION AND SIGNATURES

Item 1. Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 13 to the Company’s Condensed Consolidated Financial Statements set forth in Part I of this report.

Item 1A. Risk Factors

We face a variety of risks that are inherent in our business and our industry, including operational, legal, regulatory and product risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends. There have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended ~~June~~September 30, 2023, we did not repurchase shares of our Common Stock. In September 2022, our Board of Directors authorized share repurchases of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock through June 30, 2024. As of ~~June~~September 30, 2023, we have remaining capacity to repurchase up to $1.7 billion of Common Stock under this authorization.

4142

Item 6. Exhibits

(a)

Exhibit Index

Exhibit No.

Exhibit Description

~~10.1~~

Refinancing Amendment No. 6, dated as of June 28, 2023, to Credit Agreement dated as of June 16, 2016 among Pizza Hut Holdings, LLC, KFC Holding Co. and Taco Bell of America, LLC, as borrowers, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Collateral Agent, Swing Line Lender, an L/C Issuer and Administrative Agent for the Lenders ~~, as attached herein.~~

Letter from KPMG LLP regarding Unaudited Interim Financial Information (Acknowledgement of Independent Registered Public Accounting Firm)

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

†

Indicates a management contract or compensatory plan.

4243

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized officer of the registrant.


			YUM! BRANDS, INC.
			(Registrant)


Date:	~~August~~November 7, 2023	/s/ David E. Russell
		Senior Vice President, Finance and Corporate Controller
		(Principal Accounting Officer)

4344


	Quarter ended 6/30/2023
		KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.
Company sales		$	17	$	253	$	4	$	139	$	413
Franchise revenues		49		194		66		2		311
Property revenues		3		10		1		—		14
Franchise contributions for advertising and other services		8		148		74		1		231

China
Franchise revenues		61		—		16		—		77

Other
Company sales		98		—		—		—		98
Franchise revenues		290		14		65		—		369
Property revenues		13		—		1		—		14
Franchise contributions for advertising and other services		143		2		15		—		160
		$	682	$	621	$	242	$	142	$	1,687


	Quarter ended				Year to date
	6/30/23		6/30/22		6/30/23		6/30/22
Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense	$	(2)	$	(3)	$	(2)	$	(1)
Tax (Benefit) Expense - Income tax impacts from decision to exit Russia	(6)		71		(8)		71
Tax (Benefit) - U.S. foreign tax credit regulations issued in January 2022	—		—		—		(82)
Tax (Benefit) - Other Income tax impacts recorded as Special	(22)		—		(22)		—
Special Items Tax (Benefit) Expense	$	(30)	$	68	$	(32)	$	(12)